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The Importance of Your Homeowner's Insurance

By Elizabeth R. Elstien

A homeowner's insurance policy is a complicated legal document that most do not take the time to read. This document is so crucial to understanding the replacement of your home or belongings if damaged that it must be read. Help is here, as we explore the finer points of a standard homeowner's policy so you know what it does and does not cover.

Coverage Summary

A quick review of the declarations page shows the coverage on the home along with premium amounts. This will be sent annually, so hold on to it for a short synopsis of coverage. The remainder of the insurance policy details what that coverage actually includes.

Structural Coverage

This coverage applies to the home and its outbuildings, such as a guesthouse or garage. There should be enough coverage to replace all the buildings based on current construction prices on the property if a disaster occurs and they are completely damaged. Price the home so as to rebuild the exact same home (without the price of the land) in the same spot and take present home values into consideration. For instance, is the area increasing in value since you purchased the home? There are also different types of coverage -- homes, condominiums and mobile homes -- so make sure the right property type is listed.

Individual Property Coverage

In addition to coverage of buildings, individual property coverage deals with personal possessions in the home and outbuildings. This covers items such as television, furniture, and dishes if a loss occurs. A rider for special personal property items may be attached and made a part of the homeowner's policy. Request replacement value over cash or "fair market" value as replacement value means a new replacement of the damaged item(s) whereas cash value equates to the value of the items lost taking into account depreciation and wear and tear.

Liability

A type of coverage that provides financial protection if someone is hurt by you on your property.

Additional Coverage

Depending on where and how you live, additional coverage may be needed, such as on a home-based business or if you live in an earthquake- or wind-prone area. Discuss additions with your insurance agent.

Flood Coverage

Special coverage for flooding, especially if you live in a Federal Emergency and Management Agency (FEMA) flood zone, or other water damage such as from a hurricane, is never covered on a homeowner's policy. Flood coverage is a separate insurance policy and can only be obtained through the National Flood Insurance Program (NFIP) managed by FEMA. Policy rates are based on the Flood Insurance Rate Map (FIRM).

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