Insuring Your Home

I felt a little overwhelmed with the purchase of my first home. Looking into home insurance was one of the tasks required as we made our way through the home ownership process. Insuring your home is required by most mortgages. The bank and the insurance company are not usually concerned with the market value of the home. The insurance premiums are based on replacement value, what you would have to pay to rebuild your home if it were destroyed. There are three main components to home insurance:

• Building Replacement Cost. Most home insurance policies cover replacement cost for damage to the structure. The policy pays for the repair or replacement of damaged property with similar materials. There are a great many varieties of insurance coverage depending on your needs, including flood insurance, extended replacement cost coverage and inflation guards to adjust to higher current construction costs in your area.
• Guaranteed replacement cost coverage is the most complete insurance for your home. It pays you the full amount to replace your home, even if the amount is more than your policy's coverage limits.
• Personal Property Coverage. The maximum dollar amount of your coverage on personal possessions is based on a percentage of the coverage you have on your house. This is usually 50 percent. For example, if you've insured your home for $100,000, your personal property would be insured for $50,000.
• Liability Coverage. The homeowner's policy provides another important protection and that is called liability insurance. This means if someone is injured on your property you could file a claim under your homeowner's policy to cover medical and other expenses. Unlike coverage for personal possessions, liability coverage is based on a fixed dollar amount, not a percentage of the insurance on the house. In most policies the amount is $100,000.

After researching home insurance policies, another important step is to perform a household inventory, a detailed record of all your possessions. This inventory will help determine how much insurance you need. It is also critical in making claims if your possessions are damaged or destroyed. If you keep it up to date, the inventory provides a quick and accurate record of your possessions.

Some items, such as valuable art objects, photographs or collections cannot be insured for replacement value. In these cases the insurance company might be allowed to pay you the actual cash value rather than the replacement value.