With 95% of American homeowners having home insurance (according to the National Association of Insurance Commissioners), it's clear that most of us know how important this type of insurance is. It really is impossible to maximize the importance of insuring your home and its contents – home insurance should be considered an essential for anyone who owns their own home.
Just as important is understanding the terms of your home insurance policy. If the worst happens, and your home is damaged or destroyed, it would be a complete disaster to find out that your policy does not cover everything you thought it did. As with any other insurance policy, if you're in doubt about anything, do not be afraid to ask as many questions as you need to so that you can fully understand exactly what your policy covers.
Standard Home Insurance Policies
Standard policies cover things like damage due to tornadoes, hurricanes, and other destructive weather, fire and smoke damage, vandalism, and theft. Earthquake and flood damage is not covered. A typical home insurance policy may cover the following:
- Your home, yard (including landscaping and plants), and outbuildings on the property such as a garage, garden shed or pool house.
- The contents of your home and outbuildings. This includes holdings borrowed from others, and those relating to non-paying guests.
- Vacant land that you own.
- Cemetery plots.
- Legal responsibility for unauthorized use of your credit card or checks.
- Liability for people injured on your property, including legal and medical expenses.
- Costs incurred by your relocation from the home (including rent for temporary housing).
Standard policies may not cover the full value of items such as furs and jewelry, guns, electronic equipment, or antiques. If you own these types of items, check your policy thoroughly – you may need to increase your insurance premium to ensure you are covered for their full value. Even if you do not, it pays to go through your policy annually; to make sure it accurately reflects the value of your home and possessions.
Extra Coverage Policies
Standard home insurance policies do not cover flood and earthquake damage. Instead, these must be paid for separately. These two problems tend to be concentrated in discrete regions of the country; therefore they are not usually part of a typical home insurance policy. If you do happen to live in an area where floods or earthquakes are a possibility, then extra insurance to cover these is essential. The downside, of course, is that this coverage tends to be very expensive – those people who actually need this coverage will pay much more for it than people who do not need it.
Guaranteed Replacement Cost Policies
Guaranteed replacement cost coverage gives you just what the name suggests – if your home or possessions are destroyed, you are guaranteed the cost of replacing them, even if you're underinsured.
In terms of the home itself, this is an advantage because you are covered for the full replacement cost, even if you do not know what the actual costs will be. Guaranteed replacement cost coverage is also a good idea for certain types of possessions, such as electronic equipment. Computers, for example, depreciate very quickly – with a standard insurance policy, you'll most likely end up receiving only a fraction of what such equipment is worth, which will not be enough to cover replacement costs.