How do I Understand Homeowners Insurance?

Knowing what's in your homeowners policy will help you protect your biggest asset.
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For many couples, a home represents the biggest investment they will ever make. And while buying and moving into a home is exciting, you need to make sure that choosing a good homeowners insurance policy doesn’t get overlooked. Learning about a homeowners insurance policy isn’t the fun part of home buying, but it’s an important part. And down the road you’ll be glad you took the time to understand what is in yours.

Step 1

Be aware of the types of coverage included. A standard homeowners insurance policy will cover both dwelling and contents, but you’ll need to pay attention to what are you protected from. Risks like fire, wind, hail, and theft are standard coverages. Be sure to ask about flood coverage, however. Homeowners policies don’t generally protect you from flood; you will need to have an additional policy to reimburse you for flood loss so check with your agent to see if it’s appropriate. Earthquake coverage is usually covered in a similar way.

Step 2

Know your coverage amounts. The most important point to understand here is the concept of replacement value. In the event of a loss, you will want the insurer to cover the cost of completely replacing your home. Make sure to check with your agent or company from time to time to make sure the replacement value of your home remains accurate. The amount of coverage you have for possessions is usually, although not always, determined as a percentage of the dwelling coverage. If you have high-value possessions like jewelry or artwork, you will want to work with your agent to have them covered with special provisions or riders.

Step 3

Consider the amount of the deductible. A deductible is the part of your insurance claim that you pay yourself, before the coverage kicks in. All other things being equal, the higher your deductible, the lower the cost of your insurance. So if you want to keep the price of your homeowners insurance policy in check, consider raising the deductible and covering that cost of the risk yourself. Before being lured by low premiums, however, make sure that you have the amount of your deductible set aside as part of your emergency fund.

Step 4

Find out if liability coverage is included. Liability coverage protects you in case someone is injured while in your home. A certain amount of liability coverage is usually standard in homeowner’s policies but, depending on your circumstances, you may want to increase the amount or even take out extra protection in the form of an umbrella insurance policy.

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