Whether you currently own a home, selling or buying, insuring it and making sure your policy provides the coverage you need is incredibly important. For this, you will need to know and understand your policy well. Don’t wait until you have to submit a claim (or have had one denied) to read it.
Breaking It Down – Coverages
Actual cash value – If your policy states that it will pay the actual cash value of the contents of your home, you will be paid an amount equal to what your belongings were worth before they were destroyed. This includes wear and tear and depreciation. This coverage does not include the cost of replacing your property. Actual cash value may also be called as “fair market value” or “cash value.”
Full replacement cost – When a policy states that the coverage is for the full replacement cost of an item or property, it means just that. The insurance company will fully rebuild or replace your property without taking a deduction for depreciation. If you live in a neighborhood where home values are rising or local construction costs are increasing, you’ll want a full replacement policy. This will make sure you have sufficient resources to rebuild your home should it be destroyed.
Guaranteed replacement cost – If losses go above the policy limits, your insurance company will replace or rebuild the property without taking a reduction for depreciation, though there are usually limits to this coverage.
Other Important Definitions
The Declarations Page – This page outlines your coverage, deductible, and annual premium.
Deductible – Just like your auto insurance policy, the higher your homeowner’s deductible, the lower your premium will be. How much can you afford to pay out at once? The deductible shouldn’t be more than that.
Liability – If your friends, family, contractors, mail carrier, or even strangers are injured while on your property, you will want to have proper liability coverage to protect yourself financially. It’s extremely important to make sure your insurance agent knows if you have a trampoline or swimming pool on your property. These are considered “attractive nuisances.” Liability claims caused by these items can be very costly and your policy may require additional provisions for them to be covered.
A Rider – An addition to the insurance policy that outlines coverage for certain types of personal property not usually covered by a typical homeowner’s policy. Jewelry, artwork, and furs are items that would be covered by a rider.
Similar to homeowner’s insurance, renter’s insurance provides coverage for property in your apartment, condo or townhome. It is inexpensive, and well worth the cost. Living in any type of housing complex means you’re sharing walls with people whom you have no control over. Your neighbors may smoke in bed or leave a stove unattended, and inadvertently start a fire. Similarly, a washing machine, hot water heater, or toilet may malfunction while they’re out running errands, causing a flood. Damage to your property may not be covered by your complex’s insurance policy, and there’s no guarantee your neighbor has insurance. You want to make sure you’re covered. Most insurance carriers offer a discount on your auto policy if you add rental; it is so worth it.
Be proactive – If you haven’t already done so, pull out your policy and read it. If you have questions or if there’s something you don’t understand, call your agent or broker, and ask. Everyone should read and review their homeowner’s policy every year to make sure the coverage is sufficient to repair or rebuild your home after a disaster; adequately cover for accidents that may occur on your property; and add or change items that need to be updated.
How does this affect you and your home? Contact us today!