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Safety features protect you and your home, and may even lower your insurance premiums. Check batteries in smoke detectors regularly and change them annually when you set the clocks for daylight savings time.
| Before you can even sign the papers on your new home, you must arrange for a homeowner’s insurance policy. A paid policy or paid receipt is even required at closing. Lenders want assurance that their mortgage loans are protected. And you, as a homeowner, will want to continue to protect your asset long after the mortgage is paid.
Standard Insurance Coverage
A standard homeowner’s policy supplies a specified amount of financial protection for the house. It provides coverage–usually a percentage of the insurance on the home–for its contents. Homeowner’s insurance also provides some liability for injuries and property damage a homeowner or his or her family cause to other people. A good policy also includes living expenses if the house is temporarily uninhabitable due to damage from an insured disaster.
Appreciation and depreciation figure into insurance policies. Properties appreciate, or rise in value, when there is a demand by homebuyers. Even if a house is maintained and not improved, it probably will appreciate because the costs of materials and labor to repair or replace it continue to rise. Properties depreciate, too, with normal wear and tear as they age and with lack of maintenance.
Appreciation and depreciation are one area homeowners want to be clear about in their coverage. For example, roof shingles might have an expected life of 20 years. If a 20-year-old roof were damaged, the cost to replace or repair it would be determined by the type of coverage specified in the policy. A policy that deducted depreciation might result in no payment while another policy might pay for replacement.
Policies for Loss and Replacement
State requirements, policy costs and coverages differ. It pays to shop around.
Typical coverages available are: - Actual Cash Value. This will pay to replace your home or possessions–minus the deduction for depreciation.
- Replacement Cost. This will cover the cost–to the policy limit–of rebuilding or repairing your home or replacing your possessions without deducting for depreciation.
- Guaranteed Replacement Cost. This coverage pays whatever it costs to rebuild your home to before the disaster, even if it exceeds the policy limit, but does have some limitations such as updating to building codes.
- Extended Replacement Cost. It’s similar to guaranteed replacement, but this coverage pays just to a specific percentage over the limit to rebuild a home
Beware of Exclusions
When considering a policy, be aware of what is and is not covered. For example, while damage or destruction from fire, hail, and lightning is usually covered, there are other damages that are exceptions–as some homeowners have unpleasantly discovered. These exceptions, called exclusions, are specific situations written in the policy that tell when benefits will not be paid. Sewer backup is one example.
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