Most of us are totally baffled when it comes to understanding homeowners insurance policies. Here's a simple guide to what homeowners insurance covers and how much insurance you should have.
What is homeowners insurance?
Homeowners insurance covers your home and your personal property such as clothing, furniture, and appliances in the event of a fire, storm, explosion, vandalism, or burglary. It also protects you and your family against liability lawsuits.
How much home insurance to I need?
To figure out how much insurance you need to cover your home, ask a contractor what the square-foot building costs in your neighborhood are, then multiply that figure times your home's square footage. Example: If it costs $ 175 per square foot to build a home in you neighborhood and your home is 1,800 square feet, you should insure your home for $ 315,000 ($ 175 X 1,800).
If you have an older home or a custom home constructed of different material than the standard homes in your neighborhood, get a contractor to give you an estimate of what it would cost to rebuild your home.
If you live in a flood-prone or hurricane-prone area of the country you'll need to get flood or hurricane insurance because standard homeowners policies do not cover damages caused by flooding or hurricanes.
How much personal property insurance coverage do I need?
Many policies only pay for the depreciated value of your personal property and not the actual value, so make sure your policy pays for the full replacement value of that property.
Homeowners policies limit coverage on expensive items like jewelry, furs, and works of art, so you'll need to get a special endorsement known as a "rider" to insure these items.
What about liability coverage?
Many policies offer minimum coverage for liability insurance, usually $ 100,000. If you do not have a lot of assets to lose that's fine. But if you have a substantial amount of assets you can increase your coverage or buy an umbrella liability policy. It only costs about $ 50 a year to increase your liability coverage from $ 100,000 to $ 500,000.