Home Insurance - Is it Really Necessary?
House - Property Insurance Policies.
The largest single investment most people will make is in their home. It takes just minutes for a fire to destroy a house. Accidents and natural disasters are unpredictable. Protecting yourself from financial losses is prudent financial planning. Home insurance is also not very expensive and well worth the peace of mind one gets knowing that their home and belongings are protected against accidental loss.
Basic home insurance policies offer personal insurance protections, including losses which occur to the insured policy holder's home or belongings, loss of the use of their home, i.e. additional living expenses, as well as liability insurance for any accidents which occur on the insured property.
Basic Home Insurance policies
Basic plans for home insurance are the most popular and the majority
of people purchase basic home insurance polices as they considered
to be the cheapest.
Basic plans cover the most common types of disasters such as:
- Fire
- Lightning
- Theft Wind
- Hail Explosions
- Vandalism, Riots & Civil Unrest
- Liability for accidents to others i.e. your visitors who may get injured when visiting your home is generally also covered to some extent in basic home owner policies.
While not all accidental circumstance are covered in basic home
policies. Additional coverage can be added. Disasters such as
earthquake, Flooding, Sewer backups are not part of standard
policies and need to be added depending on your personal needs.
Flood Insurance:
Flood disasters are most common natural disaster besides fire.
Flooding for insurance purposes is slightly different than when
a burst water pipe floods your home.
Flooding for insurance purposes is usually when two adjacent
properties are under water.
To cover items such as water damage from busted pipes you do not
need flood insurance. Flood insurance would depend on the area you
live in and the risk your home may have against flooding.
Earthquake Insurance:
Earthquake damage, traditional home insurance policies do not provide
protection against damages caused by earthquakes.
Surprisingly, only a small percentage of people even in advanced
countries like the United States of America purchase earthquake
insurance.
Even in places like California where earthquake fears are always
present, only 12% of homeowners had earthquake insurance protection
in 2005.
If your home is located in an earthquake prone area then adding
earthquake insurance makes sense.
Earthquake Insurance Buying Tips
1. Check if the policy covers only the dwelling. Some policies do
not cover additional structures such as garages etc. You should
check the policy fine print. Sometimes a garage may be covered only
if it is attached to the property. If it is self standing then it
may not be covered.
2. Will your policy pay for additional living expenses if you cannot
live in your damaged home while it is being repaired.
3. What deductible do you have to pay before insurance money is
given. The higher your deductible the lesser your premium. So check out various deductible options.
4. The most important thing to remember is to check out and
understand if there are any exclusions or limitations mentioned in your policy.
Check this when you buy your policy rather than find out when you have an
insurance claim.
Home Insurance Buying
Checklist Insurance Buying Checklist
√ Make sure your policy provides for replacement costs.
If you do not have replacement costs, when paying a claim, your
insurance company will deduct depreciation for items you claim
compensation for. To give you an example,
if your television is stolen. Your insurance company
will check the amount you initially paid for the Television and
deduct a certain amount for the deprecation of the television.
The depreciation would be based on the time you had
the television. Your insurance company is such a case would pay you
the reduced amount.
On the other hand, if you had replacement value coverage, the
insurance company would have to pay out the current price for your
television even if the price was considerably higher than what you
originally paid. There would be no deduction for depreciation
regardless of how may years you had used the television.
√ Make sure your insurance policy has some type of inflation guard.
This way the value of your home will always be adjusted to account
for rising
construction and material prices.
If you have made any improvements to your home, be sure to notify
your
insurance company. Whenever you add value to your home, you should
have your insurance to reflect that added value. The costs
associated with
adding such additional amounts is very low and well worth the money.
√ Make sure your policy provides for additional living expenses.
This comes into play when you need to live away from your home when
it is
undergoing repair. Expenses such as hotel rooms etc can add up.
Check if
such expenses are covered and up to what amount.
√ Make sure you have sewage backup coverage.
Backups of sewage through your drain pipes can prove to be quite
costly.
The mess and disgusting odors are quite sickening. Not having sewage
backup insurance coverage really be very frustrating.
Trust me, make sure you have this coverage added to your policy.
MOST
home insurance policies do not cover sewage backup. Many agents do
not
even bother telling you about the availability of sewage backup
coverage.
You must add sewage backup coverage to your policy for a small
additional
cost. The cost is usually only about three to four dollars a month.
√ Make sure you have sufficient liability coverage.
Upgrading liability coverage from say one million dollars to two
million
dollars cost only a few pennies a day. Check the additional cost. If
you can
go for the extra million for an added premium of about $20 more per
year
then its well worth.
√ Make sure you are protected for added costs in case of new
building
codes. Construction codes are periodically change by municipalities to
ensure safety
and environmental rules are followed. This may result in extra
building costs.
It makes sense to ensure that your policy will pay the added costs
incase your home has to be rebuilt and you are faced with additional costs
due to
new building codes.