When you purchase home insurance, it’s essential to understand what is and isn’t covered. Your needs will vary depending on the value of your possessions, where you live, etc.
In general, basic coverage of a house is the dwelling replacement cost, which means that if your house were destroyed by fire or some other disaster, your home insurance policy would pay to have your house rebuilt at today’s prices. This amount will vary depending on where you live and the construction costs in the area. It’s essential to know how much it would cost to rebuild your home, in case you need this information at a later date.
For example, if your home is valued at $100,000 and it would cost about $150,000 to rebuild it today in the area where you live in Houston, then a dwelling replacement cost of around $150,000 might be a suitable amount to carry. However, if you live in an area where homes cost much more or less than the average, you will want to check with a local insurance agent.
In addition, be aware that home insurance companies issue policies for replacement costs, and then they include a depreciation schedule that reduces what they will pay according to how old your possessions are, from new or like-new condition to 10 years old, then 20 years old. Generally, the older your possessions are, the less you will get paid for them.
For example, if a home is insured for $150,000 and the appliances are valued at $12,000 and they’re 10 years old, then depreciation reduces that amount by 50 percent to $6,000.
1. Basic or standard coverage, which includes coverage for the dwelling and possessions.
2. Broad or expanded coverage, which adds to basic coverage additional living expenses should you be forced to live elsewhere while your home is being restored after a covered loss, plus personal liability insurance.
3. Special or all-risk or open perils coverage, which provides the most comprehensive protection by covering all losses except those specifically excluded.
Unless you live in an area where homes are extremely inexpensive or very expensive, it’s unlikely that you need $150,000 in dwelling coverage. If your possessions are valued at $50,000 and your home is insured for $75,000, then the chances are good that you don’t need more than basic coverage. The same holds true if your possessions are valued at $50,000 or less.
If you have a lot of high-value possessions, then it’s likely that you will want to carry additional insurance. If your house is worth about $75,000 and its contents are worth $100,000, then you would probably need another $25,000 to cover your possessions. This would be considered a special form of insurance, known as an endorsement of your coverage.
Home insurance is an essential part of owning a home. While you may think that home insurance cost is high, it’s nowhere near as expensive as rebuilding your home or replacing your possessions if they were lost in a fire, storm, or other accident. Make sure you have enough coverage so that if anything happens to your house you won’t be left penniless and homeless.