Navigating all of the options available for homeowners insurance can be a challenge. Since “Mother Nature” reliably makes her appearances across the country year after year, selecting the proper insurance is critical to protect perhaps the largest purchase one will make over the course of a lifetime. It is a good idea to review the policy annually to ensure the best coverage is being provided.
The Fundamentals: Standard policies should reimburse for basic damages including burglary and destruction to the home caused by fire, smoke, lightning, ice, snow and frozen pipes. In addition, traditional policies often offer liability coverage for medical claims of third parties and legal damages should the homeowner be named the defendant in a lawsuit. The most common amount of liability coverage is $100,000.
Be Prepared for the Worst Case Scenario: Before granting a loan, lenders often require homeowners to purchase at least a basic insurance plan. However, homeowners should be prepared for the worst. They should find out exactly how much it would cost to restore the home from top to bottom in case of complete destruction, and then contemplate insuring it for that amount.
Although the policy will provide the funds to rebuild the structure of the home, money is still needed to refurbish the inside with new appliances, furnishings, etc. Many consumers are not aware that they have the option to insure their home and belongings for either the replacement cost or the actual cash value. Actual cash value is the amount it would take to repair a home or replace damaged possessions after factoring in depreciation. Replacement cost is the amount it would take to repair a home with materials of similar kind and quality, or to purchase new possessions without deducting for depreciation. Understandably, insuring property to cover replacement costs is more expensive than insuring it for its actual cash value, but may be worth the difference if a consumer can afford the higher premiums.
To best prepare for refurbishing the inside, put together a detailed home inventory list. Include everything from jewelry to artwork to carpets to computer equipment to tools and sporting equipment. A list with receipts attached is ideal. Also consider doing a photographic or video inventory (date stamp the video as a record) in which the key information is chronicled. Whether a written or visual property catalogue is compiled, be sure to include a description of the item, quantity owned, brand name, model or serial number, name of the vendor, date of purchase, purchase price, current value and replacement cost. Another tip is to keep this documentation in a separate location in case tragedy should strike the home.
Water, Water, Everywhere? According to the National Flood Insurance Program (NFIP), flooding is the most common natural disaster in the U.S., yet it is typically not covered by traditional home-owners insurance policies. It is however offered by the National Flood Insurance Program (NFIP) for many areas of the country. In fact, if a property lies in a flood hazard area (determined by the Director of the FEMA to have a one percent chance of being hit by a flood), the borrower will likely be required to purchase flood insurance. If you live in an area prone to flooding, consider purchasing such a policy from a local agent. It is not wise to rely on federal disaster funds, as these loans must be repaid.
Sometimes floods are brought on by hurricanes. Hurricanes “Katrina” and “Rita” are reminders of the devastation that storms can cause. Unfortunately, hurricane insurance has become pricier and more difficult to obtain. Those living in hurricane prone areas should shop around for the most comprehensive and affordable policy from a reputable provider.