Finding the correct homeowners insurance policy is one of the most important financial decisions that you can make. This insurance can be the first and last line of defense when it comes to common accidents, but many are unsure of where to begin when it comes to finding the perfect policy. Here is a closer look at the basics of these policies and exactly what is covered.
Damage to the Home Itself
It is important to remember that these policies cover damage to what is on the property and not the property itself. If a home is purchased for $300,000, then this includes the actual land and is not the total amount of coverage that is needed. Instead, your home insurance coverage begins with damage to the interior and exterior of the home following issues such as a fire or vandalism. Most basic policies do not include earthquake and flood coverage unless riders are added.
Your Personal Possessions
In addition to the building, these policies will help you replace personal belongings in your home that have been damaged, vandalized, or stolen. This generally includes appliances, electronics, clothing, and furniture. For those that have expensive collectibles such as jewelry or firearms, it is important to include them in the policy. Depending on the value of the collection, separate riders may need to be added.
Finally, home insurance could be vital if any serious injuries or lawsuits take place. Your policy will financially protect you and your family in the event of someone being injured on your property. This includes animal bites, one of the most common accidents that require this form of insurance. Personal liability coverage can help with both medical bills and legal expenses.
Levels of Coverage
The three levels of coverage that homeowners will have to choose from include actual cash value, replacement cost, and guaranteed replacement cost. An actual cash value policy covers damage to your house and belongings minus depreciation. Replacement cost policies will cover replacement and rebuilding costs without including their depreciation. The most comprehensive coverage is a replacement cost policy, and this will actually provide upwards of 25 percent more than the original cost of building your house and purchasing your belongings.