Understanding Home Insurance: All You Need to Know

Home insurance, also known as homeowners’ insurance, is not a luxury; it is a necessity. Home insurance will protect your possessions and home in case of theft or damage. Moreover, all the major mortgage companies require that borrowers have full or a fair value of their property covered by home insurance. Unless you have proof of homeowners insurance, your home finance application for residential real estate might not be approved.

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Technically, you are not required to have a homeowner’s insurance but given the risk, it is a wise thing to secure your home with a generous insurance policy.

What does a home insurance policy offer?

Although home insurance policies are highly customizable, they generally have some standardized elements in every policy.

Damage to your exterior or interior of the house

In case of a human or natural accident, such as fire, lightning, vandalism, hurricanes, or another disaster, the insurance company will compensate you for the amount of damage so that you can restore your house to its previous state. In some cases, the coverage will include the full amount of completely rebuilding the house.

Destruction from poor maintenance, earthquakes, or floods are generally not covered in the insurance policy and you may be required separate riders to cover such damages. Other house structures such as sheds, or freestanding garages may also need separate coverage.

The possessions including furniture, clothing, appliances, and other household items are usually covered in case of a disaster. In some policies, you can also get “off-premises” insurance coverage that will allow you to file a claim for a lost item no matter where you lost it. However, there will be a certain limit that you will be reimbursed for.

If you have many high-priced items, including fine art, fine jewelry, designer clothes, or antiques, you may have to pay an extra amount to put these items on itemized schedule in your insurance policy or purchase separate riders to cover them.

Personal liability

Personal liability coverage protects you from any lawsuits filed against you. This may include accidents caused by your pets. For instance, if your pet bites another person, your insurer will have to pay for their medical expenses. It doesn’t matter whether the accident occurred on your property or at another person’s property.

Similarly, if your kid accidentally damages an item in your neighbor’s house, you can claim to reimburse their loss.

While personal liability insurance starts from $100,000 of coverage, it’s recommended to have at least $300,000 worth of insurance coverage for personal liability.

House or hotel rental while your house is being repaired

If you are likely to force yourself out of your house when it is being repaired for any damages, you should invest in an insurance policy that covers house or hotel rental expenses during that time.

This part of home insurance coverage is often known as additional living expenses that would usually reimburse you for restaurant meals, hotel rooms, apartment rent, or any other costs that you may incur before your home becomes habitable again.

What are the different types of home insurance coverage?

Since most homeowners’ insurance policies are customizable, they are not the same. The least expensive policies will give you the least amount of insurance coverage.

Let’s look at three different levels of home insurance policies.

Replacement cost

The replacement cost in the policy covers the actual cash value of the home and your possessions without deducting any depreciation. This allows you to rebuild or repair your home to its original value.

Actual cash value

The actual cash value will cover the cost of your house and the value of your possessions after adjusting them for the depreciation. This means that you will get the coverage for the value of your possessions that they are currently worth and not how much you had initially paid for them.

Guaranteed replacement value

The guaranteed or extended replacement value is the most comprehensive policy that pays for everything needed for rebuilding or repairing your house, even if the amount exceeds the policy limit.

Some insurers also offer an extended cost of replacement meaning that the policy will cover more than the purchase price. However, there is an upper limit that is typically around 20-25% more than the amount of normal coverage.

Most financial advisors recommend that homeowners must buy guaranteed replacement cost policies since it allows them to rebuild their homes at current prices.

What is not covered by a home insurance policy?

While the home insurance policy covers a lot of scenarios that include any damage to your property or possessions, some events are excluded from insurance policies. These may include natural disasters or war.

If you reside in an area that is prone to flooding or hurricanes, you might want to purchase separate riders or an extra policy that offers coverage in case of a flood or hurricane.

How can you save on home insurance?

Maintain a good security system

If you invest in a burglar alarm that is directly connected to a local police department, it may help you lower your home insurance premiums by 5% or more. To obtain this discount, the homeowner needs to provide proof of home monitoring to the insurance company.

Installing other safety equipment, such as smoke alarms carbon dioxide detectors, sprinkler systems and weatherproofing, can also help you reduce the insurance premium.

Look for bundled policies

Some insurance companies offer you a discount when you buy more than one insurance policy. For example, if you are shopping for home insurance and auto insurance, look for a company that offers both. This may allow you to get a discount of 20% and more on the cost of policies.

Paying your mortgage on time

Homeowners who are diligent in paying their mortgage payments on time are likely to have premium discounts. This is because the insurance companies realize the fact that when a property is 100% owned by the homeowner, they are likely to take better care of it.

When you are investing your life savings in a new home, it’s wise to secure your investment with home insurance. If you’re looking for home insurance services in Indian Orchard, Western Mass Auto Insurance can help you.

We are known for our affordable insurance policies that meet your requirements. Our customer service representatives ensure that you don’t have any difficulties when shopping for insurance policies.

We also offer commercial auto insurance at competitive prices to ensure that your business’s vehicles are secured against generous insurance policies.

Our company offers reliable auto insurance services and home insurance services in Indian Orchard. We also offer insurance discounts when you buy auto insurance and home insurance in a bundle. Contact us today to learn more about our insurance services.