Home Owners Insurance Coverage

Before you close on your home mortgage, you will be required to show proof of homeowners insurance. A standard homeowners insurance policy typically includes:

  1. Dwelling (often called Coverage A) – Pays for repairs or rebuilding if the home is damaged or destroyed by the events listed in the policy.
  2. Other structures (Coverage B) – Pays for repairs or rebuilding if structures on the property, but not attached to the home, such as a garage, are damaged or destroyed.
  3. Personal property (Coverage C) – Covers loss or damage to furniture, clothing, appliances and other non-fixture items.
  4. Additional living expenses (Coverage D) – Covers costs of living away from home if the homeowner needs a place to stay while the home is being repaired or rebuilt.
  5. Liability – Covers homeowners against bodily injury or property damage lawsuits brought because of incidents that occurred on the property. Pays to defend homeowner in court and awards granted by the court up to the policy limits.

Five Things to Understand about Homeowners Insurance

  1. Look for exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These coverages must be purchased separately.
  2. Look for dollar limitations on claims. Even if you are covered for a risk, there may be a limit on how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.
  3. Understand replacement cost. If your home is destroyed, you will receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you will only receive $150,000.
  4. Understand actual cash value. If you choose not to replace your home when it is destroyed, you will receive replacement cost, less depreciation. This is called actual cash value.
  5. Understand liability. Generally, your homeowners insurance covers you for accidents that happen to people on your property, including medical care, court costs and awards by court. However, there is usually an upper limit to the amount of coverage provided. Be sure that it is sufficient if you have significant assets.

Tips for lowering homeowner’s insurance premiums

Shop around and compare the costs of comparable coverage from different insurers to get the best value.

Install smoke detectors in key locations; keep fire extinguishers handy, especially in the kitchen.

Install dead-bolt locks and a burglar alarm system, particularly one that directly contact the police or fire department or an external monitoring service.

Maintain a good credit history, as many insurance companies offer better rates to individuals with good credit ratings.

Important flood insurance information

Flood insurance is a special policy that is federally backed by the National Flood Insurance Program (NFIP) and is available for homeowners, renters and businesses.

Reprinted from REALTOR® Magazine Online by permission of the National Association of REALTORS®. Copyright 2008. All rights reserved.