Homeowners Insurance - Basics
What would you do if you lost your home due to fire, wind or other catastrophe? A homeowners policy covers the building/structure, its contents, loss of its use (place to stay after a loss), or loss of other personal possessions, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner. While no amount of money can replace pictures of your children, the coffee table you bought when you first got married, or the energy that you put into making your house a home, home insurance exists so that when you start over from a theft or storm or fire, that you don't become financial broke trying to begin anew.
Home Insurance Basics
Before you sign any policies, it's important that you know the home insurance basics so that you make an informed decision. Don't be alarmed if you paid $200,000 for your home and it has to be insured for $300,000. Remember that the cost to rebuild a totally devastated dwelling might be much more than the original cost to buy the house in the first place.
Property/Dwelling/Contents--There are three figures that will surround any policy: the cost of the property (what you paid for your home), the dwelling insurance rate (cost to replace your home in full), and your contents rate (cost to replace all of your possessions).
"Contents" is basically anything that would fall out of your home if you turned it upside down and shook it. If you own a lot of expensive things, it's best to a) get higher contents insurance and b) video tape your belongings to prove to adjusters what you own in case you ever need a claim for your home insurance.
What's Not Included, Home Insurance RidersThere will be a few things that are not going to be covered under the typical home insurance policy. Anything that is not covered on your policy, but is covered on a separate, appended policy is called a "rider." For example Jewelry is covered, but usually only up to $2,500. To protect any family heirlooms or your wedding ring, you'll need to get an appraisal and take out a separate rider for those items. Another example would be Home Flood insurance, which is often required in certain areas, is a separate policy.
If you are buying a house, you will need to secure home insurance before you close. The bank will require this so that you protect their investment. If you own your house outright (i.e. there is no mortgage on it), you technically do not have to carry home insurance. It's a great idea so that you don't get left holding a big bill and nowhere to live should the worst occur, but technically, it is your property and if you don't want to insure it, you don't have to. The wise thing to do is to keep a home insurance policy even once the title is transferred upon payoff.
If you have an alarm system that reports to a central station (a company such as Brinks or ADT), in some cases, you can get up to a 10% discount. If you are over 50 and care to admit it, you may be eligible for a discount. The most common discount is the multi-policy discount. By combining the two policies with the same company, you are given a certain percentage discount on both.