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Last updated on February 3rd, 2021 at 11:53 am
It is very important to determine how much insurance you need for your home’s structure.
If any disaster strikes, you’ll want enough homeowners insurance to rebuild the structure of your home, to help replace your belongings, and to fix the damage.
A standard homeowner’s policy provides coverage for disasters such as damage due to fire, lightning, hail, and explosions.
Those who live in areas where there is a risk of flood or earthquake will need coverage for those disasters, as well.
In every case, you’ll want the limits on your policy to be high enough to cover the cost of rebuilding your home.
The price you paid for your home—or the current market price—may be more or less than the cost to rebuild.
The goal of your homeowner insurance policy is to ensure you’re covered not only for minor damage that you’d like financial help fixing, but more importantly, in case your home is completely destroyed and needs to be rebuilt from scratch.
This is known as “actual total loss” or “total loss.”
Total loss coverage varies from area to area as well as from home to home but basically boils down to an estimate of how much it would cost to rebuild your home.
That could cost more than you paid for your house, or less, it all depends on construction costs in your area.
To determine the total loss coverage for your property, you’ll want to talk to a home insurance company or agent, to determine the best amount of coverage based on your home’s square footage, the local construction market, and, of course, the current market value of the house.
Stefan Tischler, product and underwriting manager at Square one insurance services said, “When you shop for home insurance, your insurance provider will likely have access to electronic reconstruction cost-estimating tools to help provide a sense of how much coverage you need.”
If you have a mortgage on your home, your lender will probably require your coverage to equal 100% of the replacement cost of the home.
And even if your home is paid off or no requirement is in place it’s still a good idea to buy enough coverage to cover the complete replacement cost.
Even if you’ll never need to use it, the peace of mind it can provide in the event of a disaster is priceless.
If your home is destroyed by fire or damaged by a hurricane, it’s not just the roof and walls that take the hit it would also be your belongings.
Most homeowner’s insurance policies provide coverage for your belongings at about 50 to 70 % of the insurance on your dwelling.
If you want to ensure your valuables are fully protected, Tirschler suggests looking for an insurance provider that offers an “open perils” (or “all-risk”) policy.
He also says, ”Open perils policies provide the strongest protection because they cover all possible causes of loss except for those that are specifically excluded.”
As you shop for home insurance and compare quotes, you should know that most insurance providers won’t give you just one quote, they may offer several.
This is because companies often offer different levels of insurance like “basic” and “enhanced”—each with their own price, pros, and cons.
- A deductible is an amount you’ll need to pay out of pocket before your insurance starts. Generally speaking, the higher the deductible, the cheaper the monthly insurance premiums would be. Because with a high deductible, you’ll have to pay more before your insurance company has to pitch in. Deductibles often range from $1,000 up to $5,000.
- Coverage limits. A coverage limit is a maximum amount your insurer will pay when something goes wrong and you file a claim, everything above this amount, you’ll have to pay out of pocket. For instance, a more affordable, basic plan might pay the medical bills if a guest is injured at your house at up to $1,000 per person, whereas a more expensive, enhanced plan might cover up to $5,000 per person.
Limits of your coverage for any expensive items
Check your policy for the limit of items like jewelry, silverware, collectibles, or gadget.
If your home inventory includes items for which the limits are too low, buying a special personal property floater or an endorsement is beneficial.
Determine how much additional living expense insurance you need.
Additional Living Expenses (ALE) is a very important feature of a standard homeowner’s insurance policy.
ALE pays the additional costs of temporarily living if you can’t live in your home due to a fire, severe storm, or another insured disaster.
It covers hotel bills, restaurant meals, and other living expenses incurred while your home is being rebuilt.
If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.
Determine how much liability insurance you need
The liability portion of homeowners insurance covers you against lawsuits for bodily injury or property damage that you or family members or pets cause to other people, as well as court costs incurred and damages awarded.
You should have enough liability insurance to protect your assets.
Most homeowner’s insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available and, increasingly, it is recommended that homeowners consider purchasing at least $300,000 to $500,000 worth of liability coverage.
Umbrella or excess liability policies
These policies provide coverage over and above your standard home liability policy limits. They start to pay after you have used up the liability insurance in your underlying policy.
You can choose between these various insurance levels based on your personal comfort, tolerance for risk, and how much money you have in the bank in case of emergencies.
Reference Source: The Telegraph
