What to Know When Buying Homeowner's Insurance

Congratulations! You are now a homeowner!

And now that you have a home, you are going to need homeowner's insurance. While you are not required to purchase homeowner's insurance coverage by law, if you have a mortgage, chances are your lender will require having such coverage in place.

What Homeowner's Insurance Covers

Homeowner's insurance provides a financial safety net for you and your loved ones if disaster should strike. Standard homeowner's insurance policies will cover any structural damage to your home and any damage to personal property resulting from a wide range of events, including fire; lightening; windstorm, including hurricanes and tornadoes; hail; explosion; riot or civil commotion; smoke; vandalism; falling objects; weight of ice, snow or sleet; and freezing of plumbing, heating, air conditioning or other household systems. Homeowner's insurance even will cover damage to your home caused by aircraft or vehicle.

The coverage provided by homeowner's insurance also extends to personal liability. This aspect of the insurance provides financial protection if you or a family member causes bodily injury or property damage to a third party. This component of homeowner's insurance will cover court costs, typically starting at around $100,000; however, insurance experts recommend that individuals have policies that will cover at least $300,000.

Additionally, homeowner's insurance can cover any additional living expenses that might be incurred while your home is repaired, such as hotel and restaurant bills. This component can differ from policy to policy so it is important to ask your insurance company about the time frames and any specific coverage limits.

What Homeowner's Insurance Does Not Cover

While homeowner's insurance does cover damages or losses resulting from a variety of events, there are two very common disasters not covered: floods and earthquakes. For each of these events, you would need to be purchase additional insurance policies, the cost of which will depend on where you live. For example, if you live in an area at high risk for flooding, then your flood insurance premiums will be on the higher end.

Homeowner's insurance also does not cover damages or losses resulting from neglect, intentional loss, earth movement or general power failure. In addition, any damage that might be incurred as the result of an act of war also would not be covered.

How Much Will Your Insurance Cover

While the limits of your insurance policy will depend on what premium you are willing and able to pay, there are three categories into which coverage amounts fall:

• Actual Cash Value: This category will cover the costs to replace your home and/or possession after accounting for any depreciation in value. For example, if your television set cost $500 but has depreciated by 50 percent, your insurance will only pay $250 to replace it.
• Replacement Cost: This category will cover the costs to replace your home and/or possession without accounting for any depreciation in value. In this case, you would receive $500 to replace your television set versus the depreciated value.
• Guaranteed Replacement Cost: This category will cover whatever the costs might be to rebuild your home to exactly as it was before the disaster. While this option provides the greater amount of coverage, it typically comes with the highest premiums to pay for that extended coverage.