3 Things About Home Insurance Every New Homeowner Should Know
Once the home has been selected and the buying process begins to move toward the closing table, homebuyers are typically tasked with selecting and purchasing a home insurance policy that will take effect once they take legal ownership of the property. Since many of these homebuyers are unlikely to have broad experience with selecting a home insurance policy, it is common for them to need additional information to help them make a good choice.
If you are in the process of purchasing a home and would like to learn more about home insurance, here are some important points you may want to discuss with a home insurance broker or agent before selecting your coverage and purchasing the home insurance binder.
Open perils coverage
Home insurance coverage is determined by the specific details of the policy. Most homeowners choose policies known in the industry as HO-3 or HO-5 policies, which provide different types of open peril coverage. Common examples of perils, as related to home insurance coverage, typically include theft, fire and tornadoes, and other disasters.
Many homebuyers may not realize the differences in HO-3 and HO-5 coverage and how it might affect them. While the HO-3 policy does insure personal property, along with the structure, it only does so for losses occurring from disasters that are specifically listed as covered in the policy. HO-5 policies, however, offer broader coverage for structural or personal property losses that may not be directly related to a specified disaster or loss.
Cash value differs from replacement cost
It is important to fully understand the differences between cash value and replacement cost when purchasing home insurance coverage. Cash value policies typically have specific limits to the amount of coverage the policyholder has on their home and possessions; whereas, those known as replacement cost policies are designed to cover actual replacement costs.
For example, in the event of a total loss due to a structure fire, a cash value home insurance policy would pay out based on the amount specified by the policy at the time the coverage was purchased, minus the amount of depreciation. With actual replacement cost policies, however, policyholders are paid for the actual cost of replacing the structure and possessions up to a specified policy limit, with no reduction in payment for depreciation. While more expensive to purchase, replacement cost coverage can be critically important in helping homeowners rebuild their home and replace possessions.
Each home insurance policy is unique
The best home insurance policy is the one that really fits your family's needs for structural, personal property and any additional protection that may be needed. Before committing to the purchase of any policy, take time to speak with a reputable insurance broker or agent and learn about all available home insurance products.
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