It can be a risky business owning a home. Use homeowner’s insurance to protect yourself from risks like medical or legal fees for anyone injured on your property, and the costs of damage from theft, fire, wind or a bursting water pipe. Borrowers are required, by their mortgage lender, to take out insurance. You will only get a mortgage if they are assured that you have basic home insurance equal to the value of the mortgage.
Homeowner’s insurance is there to provide financial compensation in case a home or its contents are damaged. Homeowners must also decide how much coverage to purchase, aside from choosing what type of coverage to buy.
There are four main types of home insurance policies.
Comprehensive coverage is the one that offers maximum coverage. It covers the building and its contents for all risks. However, not even comprehensive coverage will cover everything. There are optional coverage risks, which include earthquake coverage, and sewer back up.
Guaranteed replacement cost coverage and straight replacement cost coverage are the two options offered by comprehensive homeowners insurance. Guaranteed replacement is not available everywhere, but is recommended if you can afford it as it pays to rebuild your home even if the amount to rebuild exceeds your policy limit. Straight replacement is a cheaper choice, but it is limited. It will pay to rebuild your house in the event that it is destroyed, however it will only cover costs up to the policy amount – so if you choose this option, make sure to buy enough coverage to rebuild.
Basic coverage or named perils will cover perils that you specifically state in the policy. There is a personal financial risk to this type of coverage because often we can’t foresee what we will need home insurance coverage for. So, if something that is not specifically named in the policy takes place, any costs associated with that peril will not be covered by the insurer.
The insurance company creates a list of “perils,” potential causes of damage or loss, when a named peril coverage policy is written. These perils are clearly listed in the policy, along with a clause indicating that unlisted causes of damage will not be covered. For instance, a named peril coverage policy that has snow, wind, rain, and fire as potential perils will not cover damage which is caused by an earthquake.
Broad coverage provides coverage that is the midpoint between basic coverage and comprehensive coverage. The contents are only covered for named perils, while main items like the building have comprehensive coverage.
Not all insurers offer this type of coverage, and only properties that don’t meet normal standards can get it.
An experienced insurance agent will help you ensure you purchase the right type of insurance for your needs.