If you own a home, you need to have homeowner’s (sometimes referred to as hazard) insurance. If you have a mortgage on your home, it’s impossible to not have at least adequate coverage; otherwise your mortgager won’t give you a dime towards the purchase of your home. Most lenders require that you buy a year’s policy ahead of time before closing.
Your home insurer will more than likely hook you up with coverage that’s adequate to both you and your mortgager’s needs, possibly throwing in a few “extra’s” that may or may not be useful, as this industry does pay it’s employees based on commission. But do you really need these extras, or even worse, are you missing the boat entirely on policy add-ons that you should have?
First things first, before you shop around to get the best price, you need to know what you’re shopping for. You need to decide if you want the bare minimum amounts of coverage (adequate), or if you want to cover absolutely everything under your share of the sun, for this will have the highest impact in your annual cost.
- Actual Cash Value (Adequate) Vs. Replacement Cost (Proper) - Covered losses under your homeowner’s policy can be paid on either of these basis’. When the “Actual Cash Value” is used, the policy owner is entitled to the depreciated value of the property- the older the item, the less it’s worth, and the less money you will get to purchase a new one. “Replacement Cost” coverage guarantees the policy owner the full amount it would cost to replace the item with something similar in quality and style today.
- Named Perils (Adequate) Vs. All Risks (Proper)- These types of coverage is in reference to “disasters” both natural an otherwise, depending on your particular insurance needs and situations, each covering somewhat different areas of the spectrum. Named Perils covers losses resulting in the perils listed in your policy, usually including situations like hail and windstorms. An All Risk policy will grant you much broader array of protection, covering losses resulting in ay peril except the ones specifically excluded from your policy. With an All Risk policy, the insurance company must prove that the claim isn’t covered, but with a basic homeowner and Named Perils policy, the policyholder must do the proving.
One point worth a mention is that with Named Perils coverage, your property is covered anywhere in the world. For example, say you’re off traveling the globe. While in China, you find a beautiful desk, hand-carved and created by Tibetan monks. You buy it and ship it home. During the shipping process, the desk is damaged. Your Named Perils policy will cover the damages, even though the desk has never been in your home.
On another note, damaged caused by earthquakes and floods are not covered under your standard homeowner’s insurance policy, so if you reside in an area of the country that is infamous for such natural disasters, it would be worth your while to invest in this type of coverage. The good news is that earthquake endorsements (the add-on for the proper coverage) doesn’t cover only damages caused by earthquakes, but also volcanic eruptions, landslides and other “earth movement” disasters.
