If you are unsure what home and contents insurance covers and the extent of the protection, you will get a better idea by familiarizing yourself with the protection offered by a standard home insurance policy. While home owner’s insurance is not a required purchase like auto insurance coverage, you typically cannot take out a mortgage unless you have your home and furnishings insured.
Generally, a standard homeowner’s policy safeguards your real estate and belongings in the case of fire or theft or natural disasters. The coverage also extends to liability protection. For example, if a visitor to your home slips and falls on your premises, the policy typically will cover the claimant’s medical expenses. A standard policy usually covers liability claims from $100,000 to $300,000.
The standard homeowner’s policy is referred to as an HO-3 policy in the insurance trade. While the policy will cover you and your home from windstorms and fallen trees, you have to take out additional coverage for earthquakes or floods. If you are situated in a floodplain, you must take out the extra insurance to cover damage from flooding.
How Much Protection Do You Need?
In order to determine just how much coverage you need, you should buy enough insurance for your home and contents to lower your out-of-pocket costs significantly in case disaster strikes. Liability coverage should offer you enough protection to safeguard you from lawsuits that result from either your own negligence or unexpected mishaps on your property.
Defining Personal Belongings
Plans that offer replacement cost protection require that the standard policyholder insure his home and belongings for 80% of the replacement cost. Standard coverages offer protection for damage to a home and other structures and the loss of personal property. Personal property is defined in home and contents insurance policies as being the personal belongings and household contents that are owned or worn by the homeowner and his family.
Get a Quote for Rebuilding
The amount of coverage you acquire through an HO-3 policy for home and contents insurance protection should adequately assist you in rebuilding and furnishing your property if it was flattened, for instance, in a tornado. If you are building a home right now, ask the home builder to provide you with an estimate on rebuilding. That figure should be used to determine how much replacement coverage will be needed.
Don’t Base the Replacement Cost on the Market Value of the Home
The guaranteed replacement cost then is the amount an insurance company will pay for rebuilding a home. Most insurance providers offer protection that caps the amount of the payout to around 125% of a homes’ insured value. Remember, you don’t want to buy protection that covers the home’s market value. You want to insure the property for the cost to rebuild.
Getting the Needed Protection
Usually, replacement cost protection is provided through extended replacement coverage. Policies that pay for rebuilding, regardless of the expense, are typically hard to find. You can ask that an inflation guard be included with the protection as well – a feature that ensures that the insured value of a home stays up-to-date with inflation or the marketplace.
Determining the Premium Cost
All homeowner policies cover the cost of replacing a building and will cover the replacement value or actual cash value of the contents of the house. In order to determine the premium cost, you will need to furnish a list of your assets and furnishings and their appraised values. If you have items that are considered luxury items, such as artwork, jewelry or antiques, then you will either need to take out a separate home and contents insurance plan or add a rider to your homeowner’s policy for the additional coverage.
Contents insurance or personal property insurance covers such items as furniture, wall paintings, rugs, ceiling fans, clothing, jewelry, appliances, lawn tools, exercise equipment and carpentry tools. Most HO-3 policies only provide protection for around a few thousand dollars.
Therefore, the limits of the insurance need to be checked before you sign up for a policy. Insured perils for personal property generally include damage from wind, fire, vandalism, or lightning. Again, you need to scrutinize the home and contents insurance protection provided in your home owner’s plan.
Taking a home inventory is a good way to feature the property that needs to be insured for home and contents insurance protection. Most insurance companies prefer you make the record using a video camera. A video copy of the receipts of personal items is also visible proof of the valuation of your home’s contents. Most policies also cover personal property protection for those times when an item is off the property. For example, protection is generally provided if you have a TV stolen when you are transporting it.
Common discounts offered for home and contents insurance are provided to consumers who live in areas with a low crime rate who install safeguards on their property. Therefore, installing deadbolt locks and 24-hour security systems can pare down the overall cost.
When you apply for home and contents insurance, you will discover that insurers provide two types of coverage. When it comes to insuring personal articles, policies will either cover the replacement cost of an item or its actual cash value. While it is usually more expensive to purchase the coverage, you need to secure protection that covers the replacement cost. The replacement cost for home and contents insurance pays the insured the amount of money that would be needed to buy a new replacement.
An Overall Better Value
The actual cash value of home and contents insurance protection is the amount you would receive for the item in the current marketplace. Usually, the actual cash value is an amount that is lower than what you first paid for the covered item. Therefore, if you are adding home and contents insurance to your insurance
portfolio, a policy that pays for an item’s replacement cost is an overall better value.
When to File a Claim
Insurance experts recommend that you should not use insurance as a vehicle to cover every type of expense. Just make sure you are covered for the major costs for replacement. Typically, it is a good practice not to file a claim unless the cost runs over $1,000.