Buying a home is one of the biggest investments you’ll make in your lifetime. Because a substantial portion of your income goes toward paying for your home, you will want it properly insured. When signing on with an insurance company, make sure you know what is covered and when the coverage goes into effect.
Whether you purchase a bare-bones policy or one that falls in a special category, coverage goes into effect when the company accepts your application and your initial premium is paid. Individual policies vary. Some insurance companies require that permanent occupancy coincide with the effective date.
There are several homeowner policy types. Each type is significantly similar throughout the United States, except in Texas, where the Texas Insurance Department dictates policy parameters. HO1 policies, which are no longer available in most states, substantially limit coverage. HO2 is a basic policy that covers most disasters and has a mobile home version available. The most popular policy, HO3, covers the vast majority of hazards, except those specifically eliminated, which are generally floods, earthquakes, wars and nuclear accidents. HO4 covers a renter’s personal property and has a liability clause. HO6 covers personal property in a condominium along with loss of use.
Homeowners insurance is considered package insurance because it covers damage to your property and its contents, and liability protection as well. Coverage is broken down into four categories: structure, personal belongings, liability and additional living expenses. Structure coverage pays to repair or replace your home. Outbuildings are generally covered for 10 percent of the insurance coverage on your home. Coverage for personal belongings falls in the 50 to 70 percent range. In other words, if you have $200,000 in coverage on your home, the insurance company will cover its contents at $100,000 to $140,000. Because theft coverage is limited for expensive jewelry and furs, you should consider supplemental insurance for them. Liability protection coverage begins at $100,000 and more is available for purchase at an increased premium amount. You are also covered if repairs to your home require living away from the house while construction is under way. Coverage is limited to 20 percent of the total insurance amount in most policies.
Make a comprehensive list of your possessions and store it in a safe place away from your home. Describe your belongings in detail. Include receipts, contracts or appraisals and clip them to the respective list. In addition to your list, it’s a good idea to photograph your possessions. You can also videotape the items you own, narrating as you go. Be sure to update the list as you make purchases. If the new item warrants additional insurance coverage, contact your agent immediately.
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