Homeowners Insurance

Lenders require proof of homeowners insurance before they close and fund a loan.  Insurance policies come in a variety of forms offering everything from basic to extensive coverage.  You may want to start shopping for your policy as early as possible to obtain the best coverage at an affordable rate and to avoid accepting a mediocre policy to meet a last minute closing deadline.  A good place to start is to ask friends and family for agent referrals who they recommend for providing a high level of customer care.  Your home is one of your largest investments and homeowners insurance is necessary to safeguard your investment in case of damages, theft, lawsuits, and a number of other unexpected events.

 
The Structure of Your Home
One component of your coverage will insure the structure of your home.  You may insure your home’s structure in these 3 ways:

• Replacement Cost:- The homeowner is paid the cost of replacing the damaged property without deducting for depreciation.  There is usually a maximum value this policy pays.
• Guaranteed Replacement Cost: The homeowner is paid the cost of replacing the damaged property without deducting for depreciation and without a dollar limitation.  These policies are not available in all states and most insurers limit the coverage to 120 per cent of the home’s value.  This extra coverage protects the homeowner against sudden increases in construction costs if materials are in high demand.
• Actual Cash Value: The homeowner is paid the amount equal to the replacement value of the home minus depreciation.

To determine the cost for rebuilding your home, multiply the local building costs by your home’s square footage.  Your local builders association or real estate appraiser may be able to provide the local building cost.  Other factors to consider are the type of exterior, style of the home, number of rooms and bathrooms, type of roof, garages, fireplaces, exterior trim, and other special features.  Check your policy for an “inflation guard clause”.  This clause adjusts your home’s value to reflect any increase in construction costs each year the policy is renewed. 

 
Personal Belongings
Your homeowners insurance may insure your personal property as well as the house itself.  If so, it typically covers your furniture, jewelry, clothes, and other personal items up to 50-75 per cent of your home’s value.  You may choose to raise the amount if you keep high value items in your home or include a provision in the policy to cover specific items.  Some policies pay the amount to replace your personal belongings (replacement value), but some pay the amount the property was worth when damaged or stolen (depreciation value).