Home insurance, or homeowners insurance, is most often a requirement by mortgage companies. Even if you aren’t required to have this type of policy, it’s probably a good idea to still have it. It’s important for you to understand how this common policy operates and the protections it offers.
What does home insurance cover?
Be sure to consult with any homeowners insurance agent about what you feel your needs are so you are properly covered, but in general a policy will provide protection for:
Interior or exterior of your house — damage due to fire, lightning, vandalism, or other covered disasters, your insurer will pay to have your home repaired or, if it requires, rebuilt. For things like floods, earthquakes, or other special types of coverages, you may need to have to pay for what are called “riders.” Garages, sheds, and other structures that are not connected to your home may require separate coverage if desired. Contents of your home are generally covered if they’re lost in the event of a covered disaster. You can also have a rider for coverage even if they’re not inside the house.
Personal liability — this protects you from lawsuits resulting from damage to property or injuries to others while they are on your property.
Hotel stay — if you have to stay at a hotel or even rent another home while your home is being repaired or rebuilt your home insurance will reimburse you for the rent, meals, and incidental costs.
Types of homeowners insurance
There are many standardized versions of home insurance. They are labeled HO-1 through HO-8 and offer different types of protection that depends on the needs and type of residence you have.
There are three terms that are important for you to know when reviewing the policy you are offered:
Actual cash value — this covers the cost of your house plus the value of your belongings after taking depreciation into account. This means you will be paid what your things are currently worth, not what you originally paid for them.
Replacement cost — this covers the actual cash value of your home and possessions without any deduction for depreciation.
Guaranteed replacement cost — this type of coverage pays for whatever it costs to repair or rebuild your home even if it exceeds your policy’s limits. However, there are limits to this “extended coverage.”
What is not covered?
There are some things you’ll find are excluded from policies like “acts of God” and acts of war. But there are also some natural disasters specifically named in policies as well.
So, if you live in places where earthquakes, floods, hurricanes, or other places where certain natural disasters occur more frequently, you may need riders to offer proper protection.
How to get lower premiums
Be careful when you’re being promised cheap home insurance. It may not offer you the coverage you need should the worst happen. But there are absolutely ways you can lower your premiums.
Security system — be sure to ask your agent what, specifically, the requirements are to receive the discount. Generally, it’s an alarm that is monitored by your provider or contacts the police directly.
Smoke/CO2 detectors — it pays to be fire safe. Sprinkler systems are another common discount too.
Dead-bolts and other locks — keeping yourself protected with less common locks? You can save a few bucks for that.
Multi-policy discounts — you’ve heard it on the commercials. The more policies you have with the company, the bigger the discount they can offer.
Higher deductibles — can you afford to chip in a little more if you were to suffer a loss? It can save you a chunk in monthly premiums.
Pay off the mortgage — if you own your home outright, you will have lower premiums.
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