Deciding how much insurance to buy for your home can be difficult. If you're a first-time home buyer, you are likely mired in a million other things and knowing what to look for in a home insurance policy can be complicated. To help you out, we've compiled a list of a few things to look out for when getting insurance for the first time.
Comprehensive and Named Perils Policies
There are two main types of insurance policies for homes: named perils and comprehensive policies. In a named perils policy, you are able to select the types of risks you'd like to be covered for: fire, hail, earthquake, flood, Godzilla, etc. A comprehensive policy, in contrast, covers you for everything with some exceptions. This means that both kinds of insurance are ultimately the same: in one policy, you get to choose the risks you want to be insured against; in the other, you're covered against everything except for those listed in the fine print. Therefore, unless otherwise specified, both policies will leave you exposed to certain risks.
As a homeowner you have to make sure you are clear about the excepted risks. You need to know what you are, and what you aren't, covered for. Your insurance broker will be able to fill you in on the details, but it is also a smart idea to read over the policy yourself to be sure.
Contents insurance covers your personal possessions -- the stuff inside your house. There are also two kinds of contents insurance: market value replacement and actual replacement cost. With market value replacement insurance, your insurance provider will pay you market value for your possessions. This means that a computer that cost $2000 five years ago may only be worth $50 now, and you will be indemnified the smaller amount. Alternately, a piece of jewelry that was once worth $100 and has been recently appraised at $500 will be indemnified for the latest market value figure. Actual replacement cost policies will indemnify policyowners with something of similar quality as the original. Under such a policy, your five-year-old computer worth $2000 will likely be replaced with a new computer of similar quality.
Because actual replacement cost policies tend to pay out more for destroyed or damaged home contents, premiums or deductibles will be higher. For homeowners who have invested a good deal of money in electronics, actual replacement cost insurance will be worth the added investment -- should you have to make a claim, your highly depreciated gadgets will be replaced with items of similar quality, rather than a market value cash payout.
Loss of Use
In the event that you are unable to live in your house while your claim is being processed, some insurance policies will provide additional funds to pay for accommodation, food and other needs during this period. After a catastrophic event like a flood or wildfire, the knowledge that you will have a safe and secure place to sleep is a welcome comfort.
When evaluating your insurance policy and determining just how much insurance you need, be sure to read over your policy thoroughly. Look out for the kinds of risks you're covered for, be sure to know what kind of contents coverage you have, and try to find a policy with a "Loss of Use" provision. Being aware of your coverage will provide peace of mind for you and your family as you move through life.