Posted on: 12 May 2021
Your home is likely your most valuable asset, which is why having home insurance is a necessity. If you have a mortgage, your lender most likely requires that you have a policy. However, if you own your home outright, you don't have to have a policy, but it is still in your best interest to have coverage. There are various policies available to choose from, and finding one that strikes a balance between being affordable and offering ample coverage is essential. Here are three tips for choosing a home insurance policy.
Insure To Replace
Knowing how much home insurance you require can be tricky. You don't want to pay for more coverage than you need, but you don't want to be left footing a large portion of the bill after disaster strikes. Obtaining insurance for your home based on replacement value is a better option than insuring for actual cash value. Policies that use actual cash value take depreciation into account, something that may leave you with high costs if there is damage.
Consider The 80 Percent Rule
Another thing to keep in mind is the 80 percent rule when looking into homeowner's insurance. Your home will need to be insured for at least 80 percent of its value. If it's not, your insurance may not cover the entire cost of replacement. This is important since increases in home value may mean that you are not meeting the 80 percent rule. Make sure you evaluate your coverage yearly to determine whether it is sufficient. Any changes you make that increase your home's value need to be reflected in your insurance coverage.
Know What A Policy Doesn't Cover
While homeowner's insurance does cover a lot, it doesn't include every hazard that may damage your home. This is why it's just as important to know what a home insurance policy doesn't cover as well. Natural hazards like flooding and earthquakes require separate insurance policies. Sewer backups are also typically not covered by typical home insurance policies. Damage that is a result of a lack of home maintenance is also something that your policy will not cover. Make sure to read the policy to understand what coverage is being provided and what coverage is not.
If you are looking into homeowner's insurance, there are a few things that can help you find the right policy. Finding the right coverage is a necessity, and for most homeowners, that means going with a policy that offers replacement value coverage. First, you'll want to consider the 80 percent rule when looking into policies. In addition, while home insurance does cover many types of damage, you will want to fill in the gaps with other policies, such as flood insurance.Share