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What Are the Basics of Home Insurance?


Homeowners insurance covers serious damage or destruction of your house, but what else is covered? Generally, clothing, furniture, appliances and most other contents of your home are covered if they're destroyed in an insured disaster. You can also get off-premises coverage to file a claim for lost jewelry, no matter where in the world you lost it, although there are typically limits. If you own a lot of high-priced possessions — fine art or antiques, fine jewelry or designer clothes — you may want to purchase a rider or buy a separate policy to cover them. Liability coverage protects you from lawsuits filed by others, so that if your dog bites your neighbor, your insurer will pay her medical expenses.

If you find yourself forced out of your home, you could be reimbursed for rent, hotel room fees, restaurant meals and other incidental costs — although there are limits.

There are essentially three levels of coverage:

  • Actual cash value — Covers the house, plus the value of your belongings after deducting depreciation.
  • Replacement cost — Covers the actual cash value without the depreciation deduction, so you would be able to repair or rebuild your home up to the original value.
  • Guaranteed replacement cost — Pays out enough cash to rebuild your home at current prices, which probably will have risen since the time you purchased or built your home.

What about rates? The frequency and severity of the claims filed on your home play roles in determining your rates. If there have been multiple claims in the past three to seven years, even if a previous owner filed some of them, you'll see a bump in your home insurance premium to the next pricing tier.

Other factors include:

  • The neighborhood and its crime rate.
  • Your home's building material, including roof type.
  • The condition or age of your home.
  • Heating type.
  • Your home's proximity to the coast.
  • Whether there's a built-in swimming pool.
  • Security systems.

If your home is not well maintained, your rate will be higher. You'll even see higher rates if you have a pup residing at your home. So, what can you do to cut down insurance premiums?

  • Maintain a security system. A burglar alarm monitored by a central station or tied to a local police station can lower annual premiums by 5% or more.
  • Do some home improvement. Smoke alarms can save you 10% or more, as can carbon monoxide detectors, deadbolt locks, sprinkler systems and weatherproofing.
  • Choose higher deductibles. The higher the deductible, the lower the annual premium. If there's a broken window or damage from a leaky pipe, you'll absorb the price to fix it.
  • Look into multiple policy discounts. If you have auto or health insurance from the same company, you'll save on premiums.
  • Keep your insurance. The longer you stay with some insurers, the lower your premium deductible will be.

Choosing the right coverage in your homeowners policy will determine whether you'll be able to rebuild your home and replace your personal belongings. Do an annual insurance policy checkup to make sure you're keeping up with local building costs, remodeling costs and inventories of your personal belongings.

Finally, note that these are just general concepts — your experience and situation may vary. Let us know if you have any questions about insurance coverage.

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