The Basics of Homeowners Insurance

Your home and the things in it generally represent the largest asset your family will ever have. For this reason it is very important to have your home and its contents insured at all times. One should have insurance on its contents, against theft, fire, windstorm, or some other disaster. It is also wise to be insured for personal liability. This would cover an accident that might occur to someone who is visiting your home.

What's Included

A standard policy provides limited protection against (for example) fire and theft. Broader coverage gives you insurance for additional losses except those that are excluded from the policy. You can also get special insurance for such items as jewelry, artwork and collectibles. You pay a separate premium for things of this type.

What's Excluded

No basic policy covers losses resulting from war, riots, police actions, nuclear explosion, or "acts of God." You can sometimes get an endorsement to your policy to cover situations that are normally excluded, such as floods and earthquakes, but it will be expensive.

What's Liability Coverage?

Liability coverage protects you if you are sued for causing property damage or injuring someone.

What's a Deductible?

This is the amount you pay for a loss before the coverage kicks in. Deductible amounts vary. Your insurance costs less if you take a larger deductible, but, of course, you will have to pay the amount of any loss up to the deductible.

How Much Insurance Should You Buy?

Insure your house for at least 80% of its replacement value, but most financial planners recommend that you insure your house for its full replacement value, and perhaps the replacement value of the contents of your home. Carefully read the terms of the policy so there will be no surprises in the event of a loss.

Caution . . .

When buying a home, if your down payment is less than 20% of the purchase price, you will probably be required to purchase mortgage insurance. Do not pay it as part of your mortgage, pay it separately. End it when your equity reaches 20% of the home's value. Mortgage insurance benefits the mortgage lender, not the individual.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice.