Understanding 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 a limit on how much the insurer will pay. For example, many
policies limit the amount paid for stolen jewelry unless items are insured
- 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 $150,000
and it costs $180,000 to replace it, you'll only receive $150,000.
- 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.
Reprinted from REALTOR® Magazine Online by
permission of the NATIONAL ASSOCIATION OF REALTORS®
Copyright 2005. All rights reserved.