How To Understand What Your Homeowners Insurance Really Covers

Posted on March 22, 2008
Filed Under Business |

If you own a house, you most likely have a homeowners insurance policy. I say most likely, because I have met some people that own their home free and clear, and choose not to have home insurance because they are self-insured. But most people have a mortgage, and the mortgage company will require an insurance policy to cover their asset.

But have you ever gone thru your homeowner insurance policy? I would like to take a minute and go over the 6 main sections that are in every home insurance policy.

The first section is the Dwelling replacement coverage. This is what a rebuilding software program has figured as what it would cost to rebuild your home. This is not what the home is worth if you sold the home. When you buy a home, you are buying the home and the land. The land has a value. When a home is rebuilt, there are many things that might be re-used, like the foundation and the well or water pipes to the house. Make sure you notify your insurance agent when you upgrade the house, like a new kitchen or finishing the basement. It is just as important that you are not under insured as it is to not be over insured. If your house replacement is $150,000, and you have it insured for $200,000, you are paying too much. The insurance company will not just send you a check for $200,000. They will rebuild your house just like it was, for $150,000. Some insurance companies will cover rebuilding to a certain percentage above the replacement value.

The next section is the amount for separate structures. This will cover any structures that are not attached to the house. Examples are detached garages, a shed, or a barn. This amount is usually 10% of the dwelling replacement number for the minimum. If you have separate structures that would cost more than this amount to replace, your agent can increase this number, without raising the amount on the main house.

The third section on a homeowner insurance policy is personal property. This is everything that you own inside the house. These are items that you can prove that you owned. I can say that I had a 60 inch plasma tv in the house when it burned down, but unless I can prove that I had it, with a receipt or photos, I will be unlikely to get another one. Take the time to write down or videotape what you have. After a fire will be too late to remember what you had, and you will probably be too stressed to remember everything. Also check your policy for limits on certain items. For example, the policy might have a jewelry limit of $1,500 per item. So if you have a piece of jewelry that is $2,500, you would only receive $1,500, unless you had a separate jewelry rider for that item. There can also be limits on computers, gun collections, and artwork. Check your policy and call your agent for more information.

The fourth category is listed as loss of use. If your home is damaged so that you cannot live in it, you have money to pay for a hotel or rental home while your home is being fixed. This is also important if you have a rental property that is damaged. The insurance will pay you the monthly rent that you cannot collect while the home is being rebuilt and the tenants cannot live there. Make sure this coverage is in there for your rental properties.

The fifth section in a homeowners insurance policy is personal liability. We live in a time where you could be sued for almost no reason at all. When you are taken to court, and are personally liable for something, the personal liability coverage kicks in. Some policies are different, so ask your agent to clarify this point to you. The default coverage is usually $100,000, but check the price increase if you raise that to $500,000 or even $1,000,000. It is usually a small increase for more coverage. You could also consider an Umbrella policy, which would cover you if the expenses are more than your personal liability coverage. A $1,000,000 Umbrella can be as little as $100 a year.

The final section in the homeowner insurance policy is guest medical. This amount is available if a guest is injured on your property. Again, ask to see the price difference to raise it from the default coverage of $1,000.

You will notice that flood insurance is not mentioned in the above breakdown. Flood insurance is a separate policy. If you are in a flood zone, then you will be required by your mortgage company to have flood insurance. Flood insurance is provided thru FEMA. www.floodsmart.gov. With flood insurance, you select the amount of coverage you would like on your dwelling and your persoanl property.

As you can see, the homeowner insurance policy is easy to understand once you understand what you are reading. An insurance agent should be able to explain any questions you may have. So go pull out your home insurance policy, and make sure you have the correct insurance coverage.

Tim Kealy is an insurance agent for Farmers Insurance, serving the Black Forest, Falcon, and Colorado Springs, CO, area. He provides auto, home, renters, business and life insurance. Visit his website today for a free insurance quote! http://www.4941234.com

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