The Basics of Homeowners Insurance

Provided by Realty Times

Buying a home is likely the biggest purchase you'll ever make. It's important to protect this investment. This is where homeowners insurance comes in.

As a renter you may have been required to carry "renter's insurance," which was likely a basic plan that covered property losses and damages in case of an accident at which you were at fault, such as fire.

A homeowners policy has to cover so much more. Your possessions now extend on past jewelry and electronics and must protect everything from shingles and flooring to your life savings.

According to Wells Fargo, "Homeowners insurance provides you with broad coverage for losses that can arise while owning or renting out your home – like damage to your personal property, theft and vandalism, and liability coverage for accidental injury to another person or property."

In the aftermath of disaster, whether from fire, tornado, theft, or liability lawsuits, repairs and replacement costs add up fast. The majority of Americans would be unable to come up with the cash needed to return life back to normal.

So, in response, you purchase insurance. Each year you pay a premium. The amount is based on numerous factors, including the value of your home and the location where you live in. Some areas have higher crime rates, greater risks of wildfire, or have multi-million dollar homes. These policy owners will likely pay more than others.

Be sure to ask your insurance provider for the specifics of what your policy covers. You want a policy that gives you the right amount of coverage. Ask about add-ons, such a flood and earthquake policies. According to Allstate Insurance, "Typically, floods and earthquakes are excluded from basic policies, but in some areas, you may be able to get supplemental insurance policies for those situations. A few other conditions most companies specifically exclude are mold, fungus, wet rot, dry rot and bacteria."

Accidents do happen, and with a battery of lawyers around every corner, you want to be sure you're protected if someone injures himself on your property. Guest medical policies also pay for medical expenses should a person injure himself on your land.

In the instance that you must file a claim, you will need to pay a "deductible." This amount ranges from a few hundred to several thousand dollars. Let's say, for example, that you have a fire. The total dollar amount of damage is $10,000. Your policy covers the fire, so you only pay the "deductible," say $500. This is much more manageable for most households.

To cover not only your property losses in this fire, but also your possession, you will need to have proof of what you had. A home has been recorded on the tax roll, but possessions are your own private property. Homeowners should create an itemized list, updated yearly, that gives evidence of what possessions they have and how much they're worth.

You want a policy that has replacement cost coverage, not just the present value. If you lose a mattress in the fire, it will cost you $1,000 to replace, not $50 (the price it might be worth now). In order to have proof of your possession, consider making a video or photo diary.

Most importantly, keep a copy of this diary and itemized list at a second location away from your home, such as at a trusted relative's house or in a safety deposit box.

If you have a mortgage on your home, you may be required to carry Homeowners Insurance. The reasoning behind this logic is simple. You are not the "owner" of your home until you have completed your loan obligations. Until that point, the bank or lender is the legal "owner." They want to be sure their investment is protected.

For those who own their home outright, homeowners insurance is not required by law, but it would be a crime not to carry it.