How homeowners insurance works
By Frank Addessi
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Your home is most likely the single biggest investment you will make in your lifetime. Whether it’s a small two-bedroom cottage in the country, a McMansion in the suburbs, or a row house in the city, you’re going to want to protect your investment and that’s where homeowners insurance comes into play.
Before you roll your eyes and think about the thrill of watching paint dry, ask yourself who has your best interests in mind — the bank that holds your mortgage, or you?
You do, of course. Relying on the bank to tell you what kind of insurance they require is certainly enough to protect the bank’s interest in your home, but it may not provide enough coverage to protect everything that you are concerned about.
Here are some of basic things to know about homeowners insurance to get you on the road to properly protecting your assets.
What’s covered by homeowners insurance?
Homeowners insurance provides protection for your structure and your belongings against damage or loss, inside and out and from top to bottom. What it does not cover is maintenance and wear and tear.
Here’s an example: If your roof is damaged by a hurricane, then it is covered by homeowners insurance, but if starts leaking because shingles have come loose over time then it is not covered.
Damage caused by poor maintenance is not the only thing excluded from coverage. Floods and earthquakes are not covered, either.
Flooding caused by rain, runoff, overflowing rivers or streams, tidal surges, and ground water (to mention a few), are not covered by homeowners insurance.
The good news is that it can be purchased through the federal flood insurance program. If you live in an area prone to earthquakes, even if they are infrequent and mild, it’s a good idea to ask about adding an earthquake rider to your policy (a rider is supplemental coverage for a specific risk). The same holds
true for volcanoes.
A home is more than a building — it’s the things you put inside of that structure as well. This is a place where purchasing only the bank-required insurance can fall very short of adequately protecting your home. The reason is the bank doesn’t care about your possessions, it only cares about the building.
While most home insurance covers some of your belongings, it may not cover them all if they are damaged or stolen. Read your policy to make sure your “contents” coverage is enough to cover “your contents.”
There is a hitch to contents coverage that can result in major headaches, especially if you believe the total of your contents coverage is enough.
Contents coverage contains sub-limits, which can leave valuables like jewelry, furs, and art under-protected. Jewelry, if it is covered at all, may only be protected up to $1,000. The same is true for furs and artwork, which may make it necessary to purchase separate riders to protect your antique watch collection and first edition lithographs.
The final leg of the homeowners insurance triad is protection for injuries to others caused by you, your family, or your pets.
The personal liability portion of your homeowners insurance will pay for the medical bills incurred when your dog runs into the neighbor’s yard and bites them on the ankle. Also covered are the long fly ball you were so proud of your 7-year-old hitting until it ricocheted off the roof of the brand new Mercedes parked next door through their large bay window and smashed a $3,000 vase.
Not all policies include personal liability protection and those that do may not offer enough coverage to protect your home from being attached as part of a lawsuit caused by the actions of you, your family, or your pets. Consider adding or increasing your limits to at least $250,000 or more depending on the value of your home.
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