CHICAGO – July 16, 2012 – Property insurance is confusing. At a minimum, new buyers should understand the levels and types of coverage, and take a few additional steps to protect themselves.
1. Know the difference between replacement cost and market value. Rebuilding a home is usually cheaper than buying an existing structure, unless the property was a foreclosure. The key: Accurately determine the cost of rebuilding when finalizing the details on a homeowners insurance policy.
2. Take a home inventory to determine the proper amount of personal property protection. Generally, policies cover 50-75 percent of the replacement value of the house. However, this may not be enough to cover certain valuables, such as jewelry, fine art, collections, electronics and other expensive items. A separate rider may be needed and should be discussed with an insurance agent.
3. Have enough liability protection. Liability coverage protects a homeowner if they’re sued for an injury that takes place on their property. Many policies will even cover a policyholder if an incident happened away from the house. Depending on their assets, some homeowners might want an additional umbrella policy if they’re worried about being sued for more than the liability coverage offered in their basic policy.
4. Know what isn’t covered. Carefully study the exclusions section of a homeowners insurance policy. If anything raises a red flag, consider additional coverage. One example: Almost no insurance policy covers flooding. If a homeowner lives in an area prone to flooding, he or she might want to consider flood insurance too.
5. Consider additional living expenses if forced from the house. If a house becomes unlivable due to a flood, earthquake, fire or other disasters, a family will need to pay for living accommodations; and they may need additional money for food, transportation and other expenses. This coverage is “additional living expenses” (ALE) and a benefit that’s usually worth about 20 percent of a home’s replacement value. Be aware of the specific policy’s benefits, limitations and exclusion.
When shopping for home insurance quotes, find a company that is financially stable and has a high customer satisfaction rating. Two resources to check these qualities are A.M. Best for financial strength ratings and J.D. Power and Associates for their annual customer service rankings, according to HomeownersInsurance.net, a website that connects homeowners with agents.
© 2012 Florida Realtors®
Reprinted with permission. Florida Realtors®. All rights reserved.