Choosing Better Insurance

Whether you are shopping around for new homeowner's insurance or simply reviewing your existing policy, there are important questions you need to ask to make sure you have the right policy for your needs. The following guide can help you determine exactly what you need to know to get the best value from your home insurance policy.

Is it cash or replacement value?

This is often confusing for homeowners, especially for those without a lot of insurance claim experience. Cash value policies only cover the current market value of the home. This means if the value of your house has gone down since you purchased, the policy may not cover the full value of the property. Another issue is that it can be more expensive to rebuild than to purchase a home of similar value. Replacement value policies cover the full replacement costs of rebuilding or repairing your home, minus the deductible of course.

Keep in mind, many policies are a combination of cash and replacement value. Often, the building itself is covered under replacement value, whereas personal belongings are assessed at current cash value. An umbrella policy can bridge the difference if you are concerned that depreciation will make it difficult to replace your belongings in the event of a loss.

What are the limits on specialty items?

One nice thing about homeowner's insurance is that it generally covers both the home and your belongings, but not all belongings are created equally. When assessing policies, find out if there are any exempt items from the general policy. For example, fine jewelry may not be fully covered under a home policy. Often, there are limits to the amount covered, which means highly valuable items can be subjected to an insurance gap. A separate policy for high-value belongings may be necessary to ensure you have full replacement value covered.

Are some types of damages exempt?

Another common misunderstanding is that everything that could damage a property is covered by a basic home policy. This isn't the case. Certain types of damages may not be included in your policy. For example, many policies do not include flood damage. You must have a separate policy that specifically addresses floods. Another example is earthquakes—often a separate policy for this sort of damage is required if you live in an earthquake-prone area. Fortunately, an insurance agent can go over the common policies that are recommended for your region so you can make sure all possible types of damage are covered.

For more help, contact a home insurance service, such as Family Insurance Centers, to discuss your policy options.