For many homeowners, their home is their single biggest asset or savings. As such, it is very important that it is protected from both accidental and natural damages. Even if you have the entire mortgage on your home paid up, you must still buy a homeowner insurance. Most homeowner policies cover damages caused by fire, vehicles, lightening, smoke, windstorm, vandalism, hail, explosion, riots, theft, aircraft, volcanic eruptions etc. A homeowner policy not only protects your home, but also some of its contents and accidental injuries to others while they are on your property. A homeowner policy consists 2 sections: Section I relates to the protection of your home's construction, contents of your home, and expenses incurred when the home cannot be used, whereas Section II deals with the coverage of your liabilities as a homeowner. Coverage section I consists of 4 parts described below.

This part of homeowner insurance is for the coverage of the structure of your home. Generally, the coverage amount for dwelling is the replacement cost (i.e. the cost of replacing or reparing the damaged area with the materials of same or similar quality). In other words, it covers the replacement of the structure irrespective of any depreciation in value. ...Show details

In order to get the complete replacement cost of the damaged area from the insurance company, you must carry the insurance for at least 80% of the replacement cost of the home. If you carry less insurance, then the payment from the insurance company will be of lesser value. This value is greater of:

  • the depreciated value of damaged area
  • (insurance purchased/80% of current replacement cost) X amount of actual loss.

Note that the replacement cost is the cost of structure only and does not include the value of the land since the land would still be there.

Structures like a detached garage or a storage area outside the house are considered to be other structures. This type of coverage covers damages to such properties. Most policies have this coverage up to 10% of the dwelling's cost or Coverage A. But if such structures are used for any business purpose, then they are not covered.

This coverage applies to the loss of household items (TV, appliances, furniture, silverware, jewelry, watches, collectibles, cash, clothes, etc). The loss may be due to the damage to the house or by other means such as a theft. Note that the coverage is only for actual cash value or depreciated value (i.e. if those items were sold in the market in their state before the loss, what they will fetch). Some of the covered items generally have maximum limits as well. Here are some of the limits: ...Show details

Cash $200
Jewelry/watches $1,500
Silverware/crockery $2,500
Business use property $2,500

If you have other valuable items or items whose values exceed the standard maximum listed above, then you might consider buying additional coverage for personal property.

This coverage is for recovering the additional cost incurred while damaged property cannot be used. This includes the cost of stay at a hotel, the additional cost of food, transportation etc. If the homeowner has rented the house, then it also pays for the lost rent while the property was unusable. Normally this coverage is up to 20% of dwelling coverage (A). Note that the damages caused by certain perils may not be covered and may require additional coverage. Some examples of uncovered situations include damage from water/flood, damages from power failures, intentional acts, damage due to poor maintenance etc.

This coverage protects all the homeowner family members from lawsuits by others who may suffer bodily injuries or damages to their properties while on the property of the insured home. The minimum amount you can buy insurance for is, $100,000. In general, people buy this coverage for more than this amount. In addition to this amount, the insurance company will also pay to defend you in the court and for any settlement charges. This coverage is for those invited to the property either directly or indirectly (e.g. a mail person).

This type of coverage pays for the medical treatment of others ( those who are not members of the homeowner family living in the insured home) who come to the insured property and get bodily injured e.g. by falling or by being bitten by the dog that homeowner family owns, etc. This

  • Review your coverage need for each section (A through F).
  • Using the covered area of your home and type of construction, estimate the reconstruction cost in your area. Insurance companies also have the tools to determine the replacement cost. You need not include the value of land for insurance coverage.
  • Shop around among the insurance companies with good track records and AAA ratings.
  • Make sure you have the dwelling coverage for at least 80% of the replacement cost of the property.
  • Pay your premium on time.
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