If you own a home, you probably have
insurance on it. A home is a big investment and, whether you
own your property outright or have a mortgage on it, you want to
protect it as much as possible from any loss or damage.
Institutions that lend money for mortgages
require that you protect your property (and their collateral) against
hazards, such as fires and storms, with homeowner's insurance.
Moreover, if the down payment on your home is less than 25 per cent
of the purchase price, you may also be required to buy mortgage
insurance against payment default. This cost can range from
2.5 percent of the mortgage amount and is added to the mortgage
principle. Many lenders also offer mortgage life insurance
that pays off the balance of your mortgage if you or a co-borrower
dies. The cost is also added to your monthly payments.
When purchasing a home, your Realtor
and insurance broker will be able to explain to you the various
forms of homeowner's and mortgage insurance available and offer
you valuable advice. But even if you have owned and insured
your home for years, it's a good idea to review your insurance from
time to time. The standard homeowner's policy comes in a package
that includes three different kinds of insurance in one. You
want to ensure you're getting the best deal for your money and that
circumstances haven't changed where you may require more or less
coverage. If you have completed a large renovation project
or an addition to your home, for instance, you will want to increase
the amount of coverage on your dwelling.
Generally, a homeowner's policy includes:
This compensates you if your house or other structures on the property
are damaged or destroyed. The land itself is not insured.
The amount of dwelling coverage you get depends on the value of
your house and any other structures on the property such as a garage,
carport, shed, decks, swimming pool, etc. Dwelling coverage
will provide money to repair or replace your damaged house or other
structures. It should also pay for additional living expenses
if you have to move out of the house while it is being repaired.
This compensates you if your belongings are damaged, destroyed or
stolen. Your personal property includes such things as furniture
and appliances, clothes and jewelry, books, plants, tools, etc.
To a certain extent, personal property, that is usually kept at
home, is also covered even if it is not on the premises.
Property being stored temporarily for someone who is not part of
your household is normally not covered.
Third party liability:
This protects you if a claim is made against you by a third party,
up to a maximum amount -- usually a million dollars. This
means that if a visitor to your home is injured, or their belongings
are damaged or destroyed, you are protected. The coverage
should also protect you if you accidentally injure someone or damage
their property elsewhere.
Regardless of what a homeowner's policy
covers, there are always limits on just how much money will be paid
for a variety of damages. Most insurance companies will cover
you only for a specific list of hazards or insurable perils that
you both agree to in advance. But it will not cover you for
every possible damage, and only up to a specified amount.
All risk insurance, for instance, covers
your dwelling and contents against such perils as fire, lightning,
explosion, sudden release of smoke, windstorm or hail, water escape
from rupture or freezing of plumbing, robbery, vandalism, falling
objects and certain other incidents. But there are other perils
that are often not included such as damage from floods, waves, melting
snow and ice, malfunctioning sump pumps, contamination by pollutants,
normal wear and tear -- to name a few.
Some insurers offer riders on your
policy, where you pay extra for insurance against such things as
earthquakes, furnace oil spills, sewer backups and other damaging
If you operate a business out of your
home, many homeowners' policies will not cover you against damage
or third party liability. Some companies now offer special
riders, or separate insurance policies, which you pay extra for
to protect your home-based business.
Homeowner's insurance works on the
same principle as other forms of insurance. While you pay
a premium to protect yourself against something you hope won't happen,
the insurance company is betting that your house, belongings and
guests will remain safe and secure. Insurers are very careful
about who they underwrite policies for. If you have ever filed
a number of severe claims or had a series of fires under unusual
circumstances, for example, you will be considered high risk and
may have difficulty being accepted for coverage.
Your home and property are valuable
possessions. The best way to protect them is to get a homeowner's
policy that covers your needs without having to pay for unnecessary
extras. That's why it pays to review your policy regularly
and to shop around.
The amount of insurance you pay depends
on a variety of factors such as: the number of perils you
choose to be insured against; the value of your home and contents;
whether or not you choose to have replacement cost insurance (you
will not get any more than the item or house was worth when it was
damaged or destroyed unless you have this form of insurance); what
riders, if any, you buy for extra coverage on valuable items; and
how your home is rated by the insurer.
A preferred rating is usually given
to houses less than 10 years old and to older houses that have been
updated to the standards of a new house. A standard rating
is given to a house that is more than 10 years old unless you can
prove that it has been properly updated. Regardless of the
rating, many insurers will give you a discount on your premium if
you have installed such safety measures as fire alarms and security