What’s typically included in a quality home insurance policy?

A good home insurance policy should offer enough coverage to rebuild and replace the contents of a home. Be sure to calculate this amount as opposed to relying on resale value or how much mortgage you pay, because you will come up with an incorrect and likely insufficient amount of coverage.  

While some kinds of damage are not covered by typical home insurance policies, many more kinds of loss can be covered. For example, damage from flooding, earthquake damage, sinkholes, and insect or rodent infestation are not typically covered. 

If a home is in a flood or earthquake prone area, it may be a good idea to pay extra coverage for those potential disasters. Keep in mind that earthquake insurance in particular can be eye-wateringly expensive. Flood insurance, on the other hand, is typically insured through the federal government’s national flood insurance plan, known as NFIP. This additional coverage is called an “endorsement.” If a home is destroyed, the insurance company would not send a check to replace your home. Much of the money would go directly to contractors involved in rebuilding. Some forms of coverage can pay out more than the policy limit to rebuild a home. Not all policies offer this benefit, however. There are several different ways a claim can be calculated. Learn upfront about the calculation a company will use to reimburse the insured homeowner. Here are some ways companies calculate payouts: actual value replacement (often used for belongings—don’t forget that value reduces over time), functional replacement value (a more expense type of wall materials could be replaced with a functional but less expensive choice), replacement cost value (like-materials are replaced with those with similar quality with no deduction for deterioration), extended replacement cost value (the company will pay out more than the face value of dwelling coverage up to a certain specified limit— this option costs more but offers peace of mind), and guaranteed replacement cost value (the company will pay the full amount to replace a dwelling with no limit — this not the common practice in the industry). Additionally, the home insurance policy should cover the potential loss of “personal property,” your belongings. Often, this figure is about 50 percent of the dwelling’s total replacement. Performing a thorough home inventory would confirm this figure and could come in handy later in case of a claim. 

While homeowners may look for the least expensive insurance, they need to take into account what that cheap home insurance actually offers. In the event of a disaster, homeowners will most likely want or need to replace their damaged property. And homes are a huge investment, so it pays to get the right coverage to protect them. In addition to adequate coverage, homeowners should check out the level of customer service offered by a potential insurer. Go online to look at customer satisfaction ratings and complaints that have been filed. Educating yourself and gathering the right information in advance will make shopping for the right home insurance a smoother experience.

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