Beginners Guide to Home Insurance

Beginners Guide to Home Insurance

What is Home Insurance? 

Home insurance is a form of property insurance that covers losses and damages to an individual’s residence, along with furnishings and other assets in the home. It is an insurance designed for people with a home of any type, for example, old age, mobile homes, rental homes or their own, there is an insurance designed for each case, providing security and support to the resident of that place.

Understanding Home Insurance

 All home insurances are divided into two sections property and liability coverage respectively. You need to review these sections carefully if you are interested in buying home insurance: 

Section 1: Property Coverage

                     The term property coverage includes anything that is under your ownership, that is your house/apartment or your personal possessions. If you have home insurance then you can make a claim in case any of your belongings is damaged or is stolen. The areas covered in this section are further subdivided into three sections.

  •  Section A: Dwelling 

It includes the interior and exterior structure of your property. In case of any damages caused by the following: 

  1.     Fire and lightning
  2.     Windstorm and hail
  3.     Explosion
  4.     Riots and civil commotion
  5.     Aircraft
  6.     Vehicles
  7.     Smoke
  8.     Vandalism and malicious mischief
  9.     Theft
  10.   Volcanic eruptions
  11.   Freezing
  12.   Art. Electric Current
  13.   Falling Objects
  14.   Weight of Ice, Snow
  15.   Water or steam
  16.   Cracking, Budging

Depending on the type of insurance you choose, mostly cover all these perils. So in case, your house gets damaged due to heavy snow or fire, you can claim your home insurance, and in cases where your house needs to get completely rebuilt for example if it is destroyed by a windstorm than you can also get it reconstructed by claiming your home insurance.  

Furthermore, if a claim is to be made on one of these incidents i.e. lightning or heavy snow, then the homeowner needs to pay a deductible, which in effect is the out-of-pocket costs for the insured. For example, if a claim is made that a house needs renovation and the cost to make that place habitable is estimated by the claim adjuster to be 15000$. The deductible the homeowner will pay is calculated from the policy agreement that is we assume 6000$. Then the home insurance company will pay them 9000$. The higher the deductible on an insurance contract, the lower the monthly or annual premium on a homeowner’s insurance policy.

 “Acts of war” or “Acts of God” such as floods or earthquakes are typically excluded from home insurance, but if you are living in a place where these are common than you can get them included in the additional coverages. Garages, sheds, and areas outside your property are also not included in most of the home insurance policies.

  • Section B: Personal Possessions

 Personal possessions include all of your belongings i.e. Clothing, furniture, appliances, and most of the other valuables of your home are covered in home insurance when a claim of a reasonable disaster is claimed. You can also claim things that you lost off the premises.

 For example, if you left your laptop in your car and somebody stole it, in such cases the claim is legitimate, and your money is recovered.

 There may be a limit on the amount your insurer will reimburse you, however. According to the Insurance Information Institute, most insurance companies will provide coverage for 50% to 70% of the amount of insurance you have on the structure of your home.1

 For example, if your house is insured for $20000, there would be up to about $14000 worth of coverage for your possessions. 

If you own expensive jewelry, antiques, or ornaments, you can get them added on your policy too or you can buy a separate policy for it. 

  • Section C: Loss of Use

 This is the most amazing thing so far about home insurances which are also known as additional living charges. For example, if you are in a situation, due to a destructive hazard that your place has gotten inhabitable, and till the time your place get renovated you need to live on rent and order food from room service, then in such cases, your money can be reimbursed and home insurance will pay you off for all your bills. However, there is a daily limit to which you can not exceed, you can exceed that limit if you are willing to pay more for your insurance.

         Section 2: Liability coverage 

Personal liability coverages include the damages caused by the owner to another person or his property. It also includes cases of harm being caused to any person inside the insured building. It also protects you from any lawsuits against you due to the destruction of property of someone or hurting somebody. It also covers medical bills if a guest undergoes some accident inside your premises or if your pet harms somebody. You can also claim home insurance if a tree from inside your property falls on somebody’s car and destroys it.

It is highly preferred by already policyholders that you add more money to the liability coverage as a few thousand dollars in the premium can make you save millions!!

Types of Home Insurance Coverages

 To understand this, you need to know what Actual Cash Value and Replacement Cost Value is.

 Actual Cash Value

Actual cash value (ACV) is the amount equal to the replacement cost minus depreciation of a damaged or stolen property at the time of the loss. The actual value for which the property could be sold, which is always less than what it would cost to replace it.

 Example of Actual Cash Value 

For example, a man purchased a television set for $3,000 five years ago and it was destroyed in a hurricane. His insurance company says that all televisions have a useful life of 10 years. A similar television today costs $3,500. The destroyed television had 50 percent (5 years) of its life remaining. The actual cash value equals $2,500 (replacement cost) times 50 percent (useful life remaining) or $1,750. 

Replacement Cost Value 

This would replace your items with current market value and no depreciation will be subtracted from it. In the above example, you would 3500$. The only downside of RCV is that these policies are 10% higher than of Actual Cash Value.  

Guaranteed Cost Value

 The policy pays the full cost of replacing the home even if this amount exceeds the policy limits. This valuation method fully indemnifies the insured without any depreciation and a maximum reconstruction payment. The provision helps the insured avoid being underinsured in the event of a total loss. An important caveat typically applies to this provision—the homeowner must allow the insurer to set the replacement cost and automatically increase it as needed.

Mortgages and Home Insurance 

When applying for a mortgage, the financial institution that has to lend you a loan will ask you for your home insurance. Mostly, it is necessary to have home insurance before you ask for a mortgage. Moreover, you also have to add the name of the lender in your home insurance policy as “mortgage lender”.

 Additional Coverages Offered

The additional considerations that you require with your home insurance policy package can be divided into three categories

  • Disaster’s Coverage

Damages caused by many disasters except for floods and earthquakes are covered by the home insurance policy. However, you can get earthquakes added to your homeowner policy as additional coverages but for floods, you need to get flood insurance. 

  • Umbrella Liability Coverage

If you have high-risk items at your place and you want protection for such valuables greater than the regular liability policy, than you can get yourself an Umbrella Liability coverage which will provide protection that’s over and above the limits of liability on all your exposures, such as your home, rental property, car, watercraft, or recreational vehicle. 

  •  Vacant Property

The home insurance policy requires you to not leave your home unattended for more than 30 days as after that important coverages start to exclude from your policy. In such cases, you can get this additional coverage in your policy to get protection for your place while you are away!!

Types of Home Insurances 

There are 8 types of standardized home insurances, each differ from each other in the cost of premium and coverages provided in each policy. The eight types are: 

  1.     Basic Homeowners Insurance policy (H01)
  2.     Broad Form Policy (H02)
  3.     Special Form Policy (H03)
  4.     Tenants Form Policy (H04)
  5.     Comprehensive Form Policy (H05)
  6.     Condominium Unit Owners Form Policy (H06)
  7.     Mobile Home Form Policy (HO7)
  8.     Old Home Form Policy  (H08)

Common Home Insurance Exclusions 

Expected wear and tear will not be covered, and you cannot make claims for items that wear out due to age and extensive use.

Insurers expect clients to maintain a degree of responsibility, and they will be less likely to pay out for a claim in cases of poor maintenance or negligence.

A claim will not be accepted if it is a result of misinformation upon taking out the policy. Be honest about the state of your home, including locks and alarms.

You will need to let your insurance provider know about any building work, use of the place for commercial purposes, or the presence of another resident.

A typical home insurance policy will require that you do not leave the home unattended for more than 30 consecutive days.

Most policies will not cover valuable items, such as laptops or bicycles, which are regularly taken away from home. These items need additional coverage.

Damage caused by war, terrorism, or civil unrest is not likely to be covered by any home insurance policy.

Damage deliberately caused by you or someone living with you will not be covered and claiming such circumstances could be considered insurance fraud.

Damages caused by floods and earthquakes will also not be entertained. Damages by floods require flood insurance but for earthquakes and endorsement can be done in you homeowners policy

Cost-Cutting Insurance Tips

To reduce the amount of insurance premiums you can do the following:

  •       Maintain a Security System – Safer locks, burglar alarms, and smoke alarms
  •       Raise your deductible
  •       Look for Policy discounts
  •       Regularly review and compare your policies
  •       Plan of Renovation- Use things that are minimum affected to perils.

Making Wise Selection of the Insurance Company you chose

Price is an essential determinant while choosing the most appropriate insurance company for yourself, but it should not be the only basis of selection. When it is about insuring your home, you must make certain that you are dealing with an insurance provider that is both lawful and creditworthy. It is suggested that you contact the insurance department of your state for getting a precise idea about the licensing position of the insurance company selected by you.

Secondly, you may like to conduct an in-depth evaluation of the financial strength of the insurance company. You can do this by going through the top-rated websites of credit agencies. Lastly, consult your friends, colleagues, and relatives for recommendations. It is always beneficial to gather knowledge from others’ experiences. So, ask someone who has claimed the insurance companies’ service and evaluate its pace of appraising any claimed amount before moving ahead.

Looking for home insurance for your dream house? A good place to start is Defy Insurance who will find you a policy based on your circumstances and requirements. Learn more here.

 Conclusion 

Taking out a comprehensive home and contents home insurance policy will go a very long way in helping you and your family to get your lives back to normal in the event of an unforeseen disaster and won’t leave you empty-handed or homeless. Home insurance policies provide you with support and protection. It provides you freedom from the insecurities and unlucky events.

If you are thinking about buying life insurance online, Defy Insurance can customize a plan for you today. Click here to find out more. 

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