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Homeowners Insurance: When You Can’t Afford to Come Up Short

Posted by Randy Smith on Friday, April 10th, 2015 at 3:18pm.

If you have taken a mortgage out on your home the bank or other mortgage lender will require you to have homeowners insurance but for cash buyers it’s optional. It’s incredibly important to have your home and its contents insured but you’ll want to cover more than that and make sure you don’t come up short. If you have insurance and think you’re paying too much, read this article on Realtor.com “5 Factors Raising Your Home Insurance Premiums” to better understand why you may be paying the rates you are.

Overly insuring your home and contents is a waste of money while being under insured could be financially devastating if something were to happen. Your home is your single largest asset and you need to protect it. To properly insure your home and its contents following are some things to keep in mind.

1. Rebuilding Your Home
Forget about market value and the property appraiser’s value, your home needs to be insured to cover the cost of rebuilding at the current cost of construction. At the time of a catastrophe is not when you want to discover you were under-insured. If something were to happen that destroyed your home you’ll want your homeowners insurance to fully cover the cost of rebuilding a new home.

2. Replacing Your Possessions
Your homeowner’s insurance policy covers your personal possessions in case of their being stolen or destroyed. It’s wise to inventory and document your possessions while you still can. If you’re not sure of the value of your possessions, you can get free home inventory software online.

You will need to decide whether to insure your possessions for actual cash value or for the replacement cost. Actual cash value is the cost of replacing a covered item minus depreciation. The replacement cost is what it would cost to replace the item. If you have an extensive collection of jewelry, art work, stamp or coin collection, or firearms, you should consider increasing your insurance coverage on those items beyond the base amount offered by your policy.

3. Temporary Housing
If you don’t want to find yourself camping out, if something happened and displaced you from your home, be sure you have coverage for temporary housing elsewhere. This covers many items over and above your regular living expenses. Read your policy carefully to know what you can be reimbursed for.

4. Cover Your Assets
Homeowners insurance goes far beyond covering your home and contents. It also provides coverage against lawsuits for bodily injury or property damage incurred by others. Take a close look at your Personal Liability Coverage dollar amount and consider increasing the limits. This coverage pays for your defense should you be taken to court and any damages awarded to another party but only up to your policy limit.

Take the time to review your homeowners insurance policy today and you’ll sleep better at night knowing you’re covered in the event of an emergency or catastrophe.

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