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Homeowners Insurance
Homeowners insurance is required by the lender to obtain a
mortgage. The typical homeowners policy has two main
sections: Section I covers the property of the insured and
Section II provides personal liability coverage to the
insured. It's a good idea to insure your home for the
total amount it would cost to rebuild it if it were
destroyed. There are three ways to insure your home:
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Replacement Cost: Under this coverage, the policy
owner is reimbursed an amount necessary to replace the
structure with one of similar type and quality at current
prices, subject to a maximum dollar amount.
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Guaranteed Replacement Cost: Under this coverage, the
policy owner is reimbursed an amount necessary to replace
the structure without a deduction for depreciation and
without a dollar limit.
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Actual Cash Value: Under this coverage, the policy
owner is entitled to the depreciated value of the damaged
property.
To
determine the cost to rebuild your home, consult with an
appraiser or a local builder. Note: You only need to
insure the structure. You do not need to insure the land.
In the event of a serious loss -- a fire, for example
-- how would I fare?
In most cases you should insure your dwelling and its
contents for their replacement values, which will likely
differ from the dwelling's market value and your personal
property's depreciated cash value. Also consider getting a
policy with automatic inflation adjustments so that the
replacement cost keeps pace with the general level of
price increases.
Standard coverage insures your possessions at 50 percent
of the value of your dwelling. Many people boost this
coverage to 75 percent with additional protection. There
are individual limits on certain types of personal
property (see below).
Freestanding structures on your property (garages,
gazebos, tool sheds, etc.) are also covered, with standard
protection equal to 10 percent of your dwelling. Trees and
shrubbery normally can be replaced up to a limit of 5
percent of your dwelling coverage. As is the case with
your personal property, you should assess your needs to
determine if you want to pay extra amounts to increase
these levels of protection.
Also, pay attention to what might happen if you were to
lose the use of your home for an extended period.
Loss-of-use provisions are important elements of
homeowners policies, and coverage levels up to and
exceeding 30 percent of your dwelling's insurance aren't
unusual.
If someone not covered on my health insurance was to
suffer a serious injury in my home, and I were found
liable, how would I fare?
The standard level of liability protection in homeowners
policies has been $100,000, but it's rising all the time.
Today, $300,000 is not an uncommon amount, and even higher
levels are recommended for affluent homeowners with
substantial assets to protect. In this situation,
"umbrella" policies have become popular. These policies
provide excess liability coverage on both your homeowners
and automobile policies, and are relatively inexpensive
(you normally need to carry both underlying policies with
the same insurer).
Can I afford a high deductible--say $1,000--to save
money on the premium?
The differences in annual premiums between policies with
deductibles of $250 (you pay the first $250 of damage, the
insurer pays the rest), $500 and $1,000 may easily be
worth twenty to 30 percent of the annual premium. So, if
you can afford the expenditure, and want to place a small
bet that you won't face a home-related loss, consider a
larger deductible.
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following states: AZ, NM, ID, CA, MO - BK#0906222
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