Decisions, decisions; fortunately, some of them are made for us. In regards to homeowners insurance, you usually don’t have to worry about making the decision to purchase a policy considering your mortgage company requires you do this. There is no choice on your behalf. However, if you buy a home with cash or you pay off your home, you might ask yourself whether or not you actually need this policy anymore. The answer is probably not black and white, but it is a good idea to have home insurance on your dwelling or residence for so many reasons. Even if you think that you’re not going to lose the house to anything since it’s not being lived in, maybe it’s not worth that much, or you don’t have anything in it, you still need to insure it. What happens if a fire destroys the home and you can’t rebuild? There are so many ‘what-ifs’ involved in owning a home, and home insurance takes away some of those ‘what-ifs’ for you.
You Have a Mortgage so You Have No Choice
Some homeowners find themselves wondering why they have to pay for homeowners insurance. The answer is simple; if you have a mortgage on your home, you don’t own it. Until you pay off that mortgage, your home belongs to the lender. This means that they get to make that decision for you. If your house burns down or is damaged in a natural disaster, the bank does not want to take the financial hit anymore than you do. However, if they don’t require that you carry a homeowners insurance policy to cover these damages, you can walk away and they end up taking the loss. That’s why they require it before they will lend you the funds to pay for your home at closing.
How Much Do I Need?
There is a lot to consider when taking out a home insurance policy. It should cover a number of different factors, and most people don’t think about all of them. For example, some people forget about the fact that their policy should completely cover them if something should happen to their home. It’s not just the home you should worry about. You should worry about the structure and what is inside the home. You need to have enough coverage to have money to replace your furniture and clothing and other possessions. These might not seem like things you need to worry about, but you do. These things are expensive and they add up.
You should have enough insurance to cover the cost of the home; which is what the home is worth. This should be the value of the home or at least the amount you owe to your lender so that you can pay off the mortgage when the house is destroyed. You might also want to ensure that you have enough money to put down on a new home, enough to live somewhere else while a new home is being built or while you are looking for one, and enough so that you can take care of yourself in the meantime. Losing your home is a disastrous situation that no one should have to endure, but it does happen to many people.
Notice the Limitations
There are always considerations to make that people are mostly unaware of. For example, were you aware that the standard homeowners insurance policy has a standard cap on jewelry that’s round $2000? That means if you have a piece that’s very valuable, you might have to get an additional insurance policy on it to cover the cost of the item if it is lost or stolen. Additionally, there are other limitations you might not be aware of, such as which natural disasters are covered. In most places, earthquakes and floods are not covered by insurance policies, which will leave you in a bad place if your home is destroyed by one of those. In this situation, you might have to buy secondary policies that will protect the home for you if these things should occur. Just be sure you read the fine print and understand all that is covered by your policy in the instance your home is damaged or destroyed.
It’s Not Just for Loss
It never fails to surprise just how many people believe that homeowner’s insurance is for complete loss. It’s not. Your policy covers many things, including the loss of items if your home is broken into or even if lightning strikes your air conditioning unit and it has to be replaced. Your home doesn’t have to be completely lost to file a claim with your insurance. Any loss or damage is worth a claim. You pay for it, so you might as well use it. Be careful, however, that you don’t take advantage of this. If you file many small claims, you could find that your rates go up and your premium increases. For example, if your house is hit by lightning and it breaks a window, it might be cheaper in the long run for you to repair that window on your own than it is for you to file an insurance claim to have it done for you.
Your Responsibility to Others
Believe it or not, people can sue you if they are injured in your home. If a friend comes over and slips on the tile in the kitchen and ends up hurt, they can sue. If a delivery person is attacked by your dog, they can sue. You have to make sure your policy includes liability to others in case something like this happens. The recommended minimum for this is $100,000, but many homeowners choose to go a bit higher and up that rate so that they are covered if the unthinkable happens and someone is injured at their home or on their property. Your home should be safe, but it never hurts to ensure you are completely covered in the instance the unthinkable happens; and it often does happen when you’re least expecting it.
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