Insurance Basics

Home insurance is required when you purchase your house or condo with a mortgage and it adds a necessary level of comfort even after the mortgage is paid off. The purpose of home insurance is to keep your home and its contents protected against damages or loss. Since purchasing an insurance policy can be confusing, the information below will explain the terms deductible, liability, and replacement value. After you learn how these home insurance basics can affect your lifestyle, you can select the right policy to protect your family and your investment.

When buying insurance, most people first think of the deductible. Your deductible is the amount you would need to pay out of pocket when the insurance company approves your claim. Higher deductibles will lower your monthly payments because the insurer is taking on less risk. At the same time, your own risk level is higher, so make sure that you choose a deductible that you can afford in an emergency. If right now your roof starts leaking, your basement floods, or your dog attacks the mailman on the front steps, how much could you afford to pay?

Speaking of mailman attacks, another home insurance quotes basics term is liability. In most states, you as the homeowner are responsible, or liable, for any damages or injuries that occur on your property. A contractor may fall off the roof while repairing your chimney. A visitor may slip on a patch of ice on your front stairs. A party guest may burn herself on your barbecue grill. Depending on the type and amount of liability coverage included with your homeowner policy, you may be able to file a claim and ask the insurance company to pay for the injured person’s medical bills. Make sure you have enough liability insurance to protect yourself in case of an accident and lawsuit.

Possibly the most critical component of home insurance is replacement value. The replacement value is what the insurance company will pay to rebuild your house in the event that a fire burns it to the ground, an earthquake damages it beyond livable conditions, or any other circumstances covered by your policy. Many consumers mistakenly think that replacement value is just the price they paid for the home and select a policy accordingly. Unfortunately the price you paid for your home is rarely enough to rebuild it and replace the contents. You must factor in the materials and labor cost for rebuilding a house of the same quality and same size on the same lot. The replacement value for a full brick house with handcrafted architectural details might end up being two to three times the present market value. You can find replacement value calculators online, or you can work with your insurance agent. Also check whether your insurance policy covers the replacement value of your house contents or the actual cash value. Full replacement value for an LCD TV would get you one of the models sold in stores right now, while cash value after depreciation might only leave you a few hundred dollars.

While there are many costs when it comes to owning a house, keep in mind that you may be able to get a tax break for a house purchase (Don’t forget about federal tax credits). Deductible, liability, and replacement value are just three examples of home insurance basics. By understanding these terms and how they impact you, you can make an informed decision and choose the home insurance policy that is right for you.