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Choosing Home Insurance Coverage

One of the biggest questions you have to correctly answer when buying home insurance is how much coverage you should get. Although you should base this primarily on the value of your property’s structure, there are several other factors that should influence it.

Knowing what these are will help you have a much clearer idea on the sufficient level and amount of coverage you need.

Your personal belongings

Majority of the homeowners insurance policies covers personal belongings for about 50 to 70 per cent of the insurance amount you have on your home’s structure, referred to as “dwelling” in the world of insurance. You can check your limits on this under the “Section I, Coverages” area of your policy’s Declarations Page.

To establish that you will receive adequate coverage, you should perform a home inventory. This task involves creating a detailed list of all your personal possessions, and the corresponding cost of repairing or replacing them in case an insured peril damages or destroys them, or if they get stolen.

Replacement cost vs. actual cash value

You have two options when it comes to how you want to receive home insurance coverage: replacement cost or actual cash value.

When you choose replacement cost, your insurer will pay for the entire cost of repairing, rebuilding, or replacing your home and insured belongings. There is a limit to the total though, but the company will not include depreciation in the formula.

Go with actual cash value, and your insurance company will pay to repair, rebuild, or replace your home and possessions less depreciation.

Where and how you can live after a disaster destroys your home

The additional living expenses (ALE) portion of a homeowners insurance policy plays a major role in protecting you after a disaster strikes and renders your home unlivable for a period of time.

In case this happens, your policy will pay for the additional costs of you and your family having to live away from your house because an insured peril destroyed it. These expenses include accommodations (like staying in hotels), restaurant meals, and paying for other necessary and basic needs and commodities.

ALE coverage varies from one company to another, so make sure you know exactly the coverage you’ll receive for such situations, and how long you’ll receive it for. Majority of insurers allow their policy holders to increase the coverage amount and length, but for additional premiums.

Personal and property liability to other people

When an accident occurs in your home and someone who isn’t part of your household gets injured, the liability coverage portion of your homeowners insurance policy will protect you against lawsuits. The victim may file a lawsuit against you for bodily injury, and without insurance, this can get really messy and expensive. The policy also covers you against lawsuits for property damage. This applies to you, the other members of your household, and your pets.

It’s extremely important that you don’t overlook any of these important factors for consideration, as they will most certainly help prevent the costly consequences of underbuying or overbuying.

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