Before purchasing or renewing a homeowners’ insurance policy, consumers should familiarize themselves with the general coverage and then ask relevant questions to ensure they receive satisfactory answers. Some of the most important queries you should ask include the following:
How Much Are Rebuilding Costs for Total Loss?
Your homeowner's insurance policy will cover reconstructing costs if a natural disaster destroys your house. Your insurance agent or company representative will be able to estimate the price based on the materials used in your home's initial construction and their knowledge of your neighborhood.
This includes coverage for loss caused by fire, hurricanes, hail, lightning, or any other disaster listed in the policy. However, if needed, you will have to purchase a separate flood or earthquake damage policy because a standard homeowner's policy does not cover these.
How Much Is the Property Worth in the Event of Total Loss?
Your homeowners' insurance should also cover the cost of replacing any personal items (such as furniture, electronics, and clothing) stolen or destroyed by a disaster covered by the policy. Generally, companies offer personal property coverage, a proportion of the insurance you have on your dwelling.
If you have $100,000 in dwelling coverage, the company would suggest $50,000 to $70,000 of personal property coverage. To ensure that the coverage is right for your situation, you must inventory all items in your home.
How Much Liability Protection Is Needed?
Liability insurance protects you from any legal claims arising due to bodily injury or property damage caused by you, your family, or your pets. It pays for the cost to defend you in court and any court awards up to the limits of your policy. You are covered no matter where you or your family members are located in the world. The minimum liability coverage typically offered by insurers is $100,000.
However, most experts recommend you purchase at least $300,000 in coverage. Consider investing in an umbrella liability policy if you have significant assets and need more protection than the standard limits.
How Much Additional Living Expense Coverage Is Needed?
Homeowners' insurance policies have an ALE provision that pays for the costs of living elsewhere when damage from a covered disaster means you cannot reside at your home. This can include hotel bills, meals, and other expenses on top of your regular living costs. The amount of ALE coverage varies, but it typically equals up to 20 percent of the coverage for the dwelling. For instance, if your house is insured for $100,000, you would have $20,000 of ALE coverage. Time limitations may also apply, such as between 12 and 24 months.
Is a Flood or Earthquake Policy Required?
In 2011, the United States experienced several floods and earthquakes. Yet, many Americans did not have insurance for either of these natural disasters because such perils are not included in standard homeowners’ insurance policies. To ensure you are adequately protected, contact your insurance provider to inquire about any additional coverage that may be required.
In Closing
Forewarned is forearmed. Knowing the ins and outs of your homeowners’ insurance policy can prepare you for other financial needs. Always discuss with a certified insurer to get you up to speed regarding other plans you must buy, should there be any exclusions.