In today’s world, homeowner’s insurance is a necessity. Many things could go wrong and lead to the need to file an insurance claim. Without this protection, you might find you still owe the bank money and have nowhere to live.
How will you afford to pay rent and cover the mortgage payments of an uninhabitable home?
When you purchase a house, the mortgage lender requires you to carry this insurance. Once the home is paid for, you must continue the coverage for your protection. What should you know about insuring your home?
How Does Homeowners Insurance Work?
Most homeowners’ insurance policies cover four types of damage: interior, exterior, personal assets, and personal injuries. When you file a claim, you must pay a deductible and the insurer covers the rest of the costs associated with the damage.
However, you may need riders for additional coverage. For example, most policies don’t cover flood damage or certain belongings. Take with a licensed agent to learn what coverage is needed for the highest level of protection.
Furthermore, ask about depreciation. For example, will they pay the actual cash value of items to the insured or will they pay for a replacement item? If you want them to pay the full replacement cost, you may need a recoverable depreciation clause.
The insurance agent can help you determine which is best for your needs. Higher deductibles help make homeowners’ insurance more affordable, so keep this in mind when comparing the many options.
Coverage Amount
You also need to know your coverage amount, which insurers refer to as the liability limit.
Most policies come with a standard limit of $100,000, but you may request more. This limit puts a cap on the amount the insurer must pay to repair or replace items in the home or the structure itself along with additional living expenses incurred because of the damage.
Mortgage Lenders and Homeowners’ Insurance
Most mortgage lenders require proof of insurance before lending a person funds to purchase a home. Experts recommend comparison shopping for a policy rather than obtaining one through the mortgage lender.
Shopping for a policy on your own can help you save money. Insurance premiums are typically included in the monthly mortgage payment. The lender collects the money, places it in an escrow account, and pays the insurance bill when it comes due.
How Does Homeowners’ Insurance Differ From a Home Warranty?
Homeowners’ insurance covers catastrophic damage to a residence.
A home warranty covers damage resulting from normal wear and tear. A home warranty isn’t mandatory, although many homeowners choose to purchase one to protect themselves from high repair bills and replacement costs.