What is Homeowners Insurance?
Homeowner's insurance is another one of the expenses that go hand in hand with home ownership. You may be thinking that you have too many expenses already, and you can take a pass on home insurance, but this would be ill advised. Homeowners insurance can help you save money in the long run. If something should happen to go wrong - your roof falls in, your septic system fails, you have a fire, a tree falls on your house - well, we could go on and on. In the final analysis, homeowners insurance is simply the best way to protect you against unforeseeable losses.
But I Have a New House, and I Don't Live in Tornado Alley!
Good for you. But think about this - what happens if someone gets hurt on your property? As the homeowner, you could be liable for his or her medical bills, rehab, even long-term care in the event of, God forbid, something like a catastrophic head injury. That's just personal liability, nothing to do with your new home. And as to your new home, didn't we just mention the possibility of fire? Home insurance is a must.
What Type of Policy Should I Get?
There are homeowners insurance policies for people in traditional homes, mobile homes, cottages, and older homes. Most people will want what's known as an HO-3 policy. This homeowners insurance policy covers you against theft, damage, and personal liability. It also covers damage caused by most disasters, although you might need extra home insurance coverage for earthquakes and floods. Most homeowners insurance policies will also cover any outbuildings on your property, and will provide you with living expenses if you have to go to a hotel following catastrophic damage. No homeowners insurance policy will cover you against wear and tear, or damage that is caused because you haven't properly maintained your property.
How Much Coverage Do I Need?
The purpose of home insurance, when it comes to damage, is to put you back in the position you were in before the damage occurred. For most homeowners, you'll want to be covered up to $300,000. At the very least, you should be covered for $100,000 - that might not get you back to where you were, but it should put you in a livable situation.
Ideally, what you want is to get homeowners insurance policy that covers the cost of rebuilding the home you have right now, if the worst should happen.
Replacement for Contents
When you're calculating your total replacement cost, if the worst should happen, remember that you have to consider the contents of your home. You'll have the option of insuring for replacement cost, or actual value. Home insurance coverage for replacement cost is usually about 10% higher than it is for actual value, but it might be worth it. Consider, for example, that you're not all that into electronics, and you still have a black and white TV with rabbit ears. If your home is destroyed, and you're looking for a new TV, your replacement value on your actual television is probably something like ten bucks. But if you're going to get a new TV, you'll have to spend considerably more. Say your stove was originally bought from Goodwill for $25. Now you need a new one. All your furniture was donated by Mom and Dad, and you can't really determine the value, and now you need new furniture. See where we're going with this?
Sometimes paying the extra for replacement value insurance makes sense. Of course, if you already have high-end stuff, and can prove it (hint: take pictures), then actual value is better.
Remember that if someone is injured on your property, even if they've been trespassing, you can still end up liable for those injuries. And when you consider medical bills, physiotherapy, loss of income, and all the other factors that can come into play, it can get expensive. Make sure that if nothing else, you carry liability insurance. It's one of those things that you pay for and hope you'll never have to use, but if you ever do have to use it, believe us, you'll be glad you have homeowners insurance policy.