How to Choose the Right Homeowners Insurance

If you have recently bought your first home or are about to do so, congratulations! Buying a home is the first step toward building wealth for most people. Since your home is probably the biggest investment you have made so far, it makes sense to protect it and to do that effectively, you will need to get homeowners insurance.


If you have a mortgage on your home, your lender will require you to get homeowners insurance, so you do not really have much of a choice about the matter. But how do you make sure that you are getting the best homeowners insurance? Read on to find out!

What Is Homeowners Insurance?
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Homeowners insurance is insurance for a home that you own and pays a portion of the cost of repairing or replacing your home in the event of fire, smoke, theft, vandalism, inclement weather and other hazards.

When you have one of these types of events happen to your home, you would file a claim with your homeowners insurance company. They typically will send out someone to inspect the damage, determine the cause of damage and estimate the costs to repair it. 

If the inspector determines that the cause of the damage is not covered by your policy, you will be responsible for all of the costs of fixing the problem. But if it was caused by a covered event, the insurance company will pay for the costs of repairs, less the amount of your deductible.

If all or part of your home is completely destroyed and needs to be replaced, how much money the insurance company will pay you is determined by which of the two homeowners insurance coverage types you have. Actual cash value policies take into account the age of the item(s) that needs to be replaced and pays a percentage of the replacement cost based on a depreciated value. 

For example, if your kitchen cabinets were destroyed by a plumbing leak and they were ten years old, you would get significantly less than the cost to replace those cabinets today. If they were two years old, you would get close to the replacement amount. These types of policies are less expensive than the alternative, replacement cost policies.

Replacement cost policies pay for the entire cost to replace destroyed items, regardless of the age of the thing being replaced. Since costs usually go up over time, this means you would get more money for the claim, and correspondingly, the policy premium would be higher.

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By Admin