Home Insurance Basics


When shopping for home insurance, there’s much more to consider than how much your coverage will cost.

You need to buy the right type of policy.  You need the proper level of protection, plus special provisions for valuables such as jewelry, your computer equipment and other possessions.  You might also need additional coverage for such things as earthquakes or flooding. 

Lending institutions usually require mortgage customers to purchase homeowners insurance.  Don’t rely on the coverage levels mandated by your bank or mortgage company.  Those levels are designed to protect the house itself, but not necessarily your possessions.  That’s why it’s important to check with your agent or insurance company, to make sure you have adequate coverage.  Always keep an up-to-date home inventory


There are several basic types of home insurance policies:



Covers your house and possessions against 11 different perils.





















There are variations on these policies as well. For example, landlords can buy coverage that insures only their buildings and not your personal property (which is what a renter’s policy would cover). You can get special policies to cover mobile homes (a.k.a. manufactured housing).


Starting an application

When you apply for homeowner’s insurance, you’ll provide a great deal of information.  The insurance company will ask you about your current occupation and employment history, marital status, previous addresses, date of birth and Social Security number. The insurer will check your criminal, credit, and insurance history to see if you are a "good risk." The insurance company also will look at your "loss history" to see what kinds of home insurance claims you've made in the past.


Analyzing your home

Many factors go into determining the premiums for a homeowner’s policy.  The age of your home, the materials used to build it, where it’s located, the square footage, and the numbers of rooms all play a role. 

 How do you heat your home?  What’s the overall condition of the house?  How many people live in your home?  How close is your home to the nearest fire station and fire hydrant?  The answers to these questions also help determine how much you’ll pay for your homeowner’s policy.


Ways to save

If your home is equipped with an alarm system, smoke detectors and deadbolt locks, you could save money.  Those items help make your home safer and more secure.  If you have an in-ground pool or a trampoline, you might pay higher premiums. You can also expect to pay more if you are located in a higher risk area, such as a coastline or a high crime area. Your insurance company will also want to know if you plan to use the home for any business purposes, of if you plan to rent all or part of the house, both of which can increase liability.

Armed with all this information, insurance companies can determine how much to charge you for insurance, sometimes in a matter of minutes.


Your policy dollar limits are important

If you insure your house for $100,000, that's the most you will get if it is destroyed, even if it would cost more to replace it. The Declarations Page on the front of your policy shows how much coverage you have. Talk with your agent or company representative if you have any questions about your insurance limits


Replacement cost coverage for your personal property

Before buying homeowner’s insurance, you need to understand the difference between ‘replacement cost’ and ‘actual cash value,’    Most homeowner policies contain replacement cost coverage on the home and actual cash value coverage on personal property.

Homeowner’s policies automatically cover household contents - furniture, clothes, appliances, etc. - up to 40 percent of the amount your house is insured for. This means if you insure your house for $100,000, its contents are insured for up to $40,000.  You can get more coverage by paying a higher premium. This automatic coverage pays only the actual cash value of damaged, stolen, or destroyed household goods. Actual cash value is an items replacement cost, minus depreciation.  You will need to provide an inventory of your home's contents

Replacement cost policies give you more protection than actual cash value coverage. For example, what happens if a burglar steals your six-year-old television set. With actual cash value coverage, you get only what you would expect to pay for a six-year-old television set. With replacement cost coverage, the insurance company pays to replace your TV with a new set similar to the stolen one.

Insurance companies generally want proof you replaced an item before paying your claim in full.  An insurer might offer to replace the items instead of paying cash, but the choice is yours.


Take inventory

Many people learn after a fire or storm they didn't have enough personal property coverage. Taking inventory will help you decide how much insurance you need. It also will simplify claims.

Your inventory should list each item, its value, and serial number. Photograph or videotape each room, including closets, open drawers, storage buildings, and your garage. Keep receipts for major items in a fireproof place.


What other protections does my policy provide?

Homeowner’s policies regularly provide other types of coverage, including off-premises theft protection and unauthorized use of your credit cards. Make sure you understand which provisions are included in the standard coverage you elect to purchase and which might require supplemental premiums.


Supplemental coverage

Homeowner’s policies cover specific risks.  Depending on what you own and where you live, you might need to supplement your policy with special coverage.


Flood insurance

Homeowner’s policies do not cover flood damage. The National Flood Insurance Program (NFIP) offers flood coverage in many areas. Local insurance agents sell NFIP flood policies and can tell you about the program in your area.

If a mortgage lender determines a home is in a special flood hazard area, the borrower might be required to purchase flood insurance.


Earthquake insurance

If you are concerned about earthquakes, you can get coverage with a separate policy.


Extra coverage (Endorsements)

You might want more coverage for certain items than your policy provides. For an extra premium, you might be able to buy endorsements that expand or increase the coverage on these items. Some of the most common endorsements cover jewelry, fine arts, camera equipment, coin or stamp collections, computer equipment, and radio and television satellite dishes and antennas.


Personal umbrella liability insurance

If you want more liability coverage than a homeowners policy provides, you can buy a separate umbrella policy. Because policies vary, make sure the agent or company fully explains the coverage.


Higher deductibles, lower premiums

Deductibles allow you to cut the cost of your insurance, by assuming some of the risk.  If you have a $250 deductible on your homeowner’s policy, you agree to pay $250 to cover any losses, before the insurance company pays the rest of your claim.  By increasing that deductible to $1,000, you might save 20 to 30 percent on your premiums.  You must decide whether lower deductibles or lowering your premium is right for you.



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