5 Things to Understand About Homeowners Insurance
- 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 bought separately.
- 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.
- Understand replacement cost. If your home is
destroyed, you’ll 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 $250,000 and it costs $280,000 to replace it, you’ll
only receive $250,000.
- Understand actual cash value. If you choose not to
replace your home when it’s destroyed, you’ll receive replacement cost,
less depreciation. This is called actual cash value.
- Understand liability. Generally, your homeowners
insurance covers you for accidents that happen to other people on your
property, including medical care, court costs, and awards by the court.
However, there is usually an upper limit to the amount of coverage
provided. Be sure that it’s sufficient if you have significant assets.