Home Owner Insurance

You need enough home owner insurance to cover the structure of your home, your personal possessions, the cost of additional living expenses if your home is damaged and you have to live elsewhere during repairs, your liability to others.

The structure - You need enough home insurance to cover the cost of rebuilding your home at current construction costs. Don't include the cost of the land. And don't base your rebuilding costs on the price you paid for your home. A homeowner insurance quote is available online.

Your personal possessions - Most homeowners insurance policies provide coverage for your personal possessions for approximately 50% to 70% of the amount of insurance you have on the structure or "dwelling" of your home.

Additional living expenses after a disaster - This is a very important feature of a standard homeowners insurance policy. This pays the additional costs of temporarily living away from your home if you can't live in it due to a fire, severe storm or other insured disaster.

Liability to others - This part of your policy covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by pets.

Homeowners Insurance

Homeowners who know what kind of insurance coverage they need may be able to save money on their monthly premiums. Homeowners can choose between two types of coverage. The two choices for insuring personal property and contents of the house are actual cash value and replacement cost.
Actual cash value covers the contents of a home for the original value of any item, less a deduction for depreciation, age, or wear and tear. The insurance company will pay the cash value of the item at the time of the loss. For example, a sofa that was purchased five years ago for $1,000 may have a cash value of only $500, because of depreciation. If destroyed, the insurance company would only pay $500, even if it costs as much as $1,500 to replace the sofa.
With replacement cost coverage on home contents, the homeowner is reimbursed for the amount necessary to replace the destroyed item with one of the same type and quality. This coverage is more expensive than actual cash value coverage. Insurance companies usually require an amount of insurance equal to at least 80 percent of the full-replacement value of the home.
Valuable antiques and other expensive items need to be appraised and insured separately regardless of the type of replacement coverage selected. When determining the full replacement cost of a home, figure the actual cost of building a home of the same type and quality, she said. This cost is not its market value or selling price. Depending on the real estate market, the selling or market price could be higher or lower than the cost of replacing the home. Insurance agents can help figure replacement costs for dwellings.
To have full replacement cost for a home that costs $120,000 to build and its contents, coverage must be at least $96,000. An inflation rider is usually available for an extra charge to provide automatic increases in coverage to keep pace with inflation. This will keep insurance coverage up-to-date and prevent future problems with being underinsured.

If the coverage is not for the full 80 percent or more, only a portion of the loss would be covered, depending on the percentage of coverage that was purchased. Inadequate coverage can prove to be very costly in the event of a loss.

Homeowners should shop around for coverage and keep it up-to-date. Contact your insurance agent for a review of your coverage, if you're unsure about the amount and type of coverage you now have.