What to Look for
in a Homeowners or Renters Insurance Policy
Insuring your home and its contents is a prudent step toward controlling
your financial future. While no one expects a catastrophe, disaster can
strike. It could be a fire, roof leak, hail storm, flood, break-in or
some other mishap caused by nature or by another individual. Being protected
If you are a renter, your insurance should cover your belongings and provide
some liability coverage for injuries to others in your home. If you own
your home, your protection should also cover the costs of repairing or
replacing your home if needed.
Components of a homeowners policy
Homeowners insurance covers the cost of rebuilding or repairing your home
and other structures (garage, shed, etc.) if the home is destroyed or
damaged. It covers the contents of your home in the event of damage or
theft. It also protects you against your liability for injuries to other
people or damages to their property.
The structure. You should have enough insurance to cover the cost
of rebuilding your home if it is completely destroyed. Even though you
know how much your home cost, remember that price included the land it
is sitting on. You may want to get an estimate of actual replacement costs
for the structure. Your mortgage lender or an insurance agent can probably
give you an estimated per square foot replacement cost. Do the math and
make sure you have at least that much insurance. Also it makes sense to
review that cost every few years as costs of construction continue to
Contents of your home. Most homeowners policies include coverage
for your personal property in your home. This includes furniture, clothing,
some electronic devices and even food in the pantry. The key is to know
what you have. Prepare an inventory of everything in your home. While
this can be a thankless task, it will be invaluable if you have a claim.
At a minimum take pictures or video tape your belongings. Most people
have a very difficult time just remembering what they own. Keep a copy
of this inventory in a safe place and away from your home. Use a safe
deposit box. Having a complete inventory that burns in a fire does not
do much good.
Also be sure your insurance policy covers the cost of replacing your personal
property. Some policies offer coverage for "actual cash value"
of your belongings. That is calculated by subtracting depreciation from
the original cost. The stove you bought for $800 six years ago may have
an actual cash value of only $300 and a new one may cost $900.
If you have especially valuable items, such as jewelry or art works, you
may want to consider a special rider to your policy to cover those items.
Discuss this with your insurance agent and read the policy carefully.
Be sure to understand how computers, stereos and other electronic items
Liability coverage. Homeowners policies include liability protection
that covers damages you cause to others inside and outside your home.
If a visitor trips and breaks a leg by falling over an electrical cord
running across your family room, your policy will cover the visitor's
expenses. You policy also covers damages caused away from your home. If
someone falls after tripping over your grocery cart at the store, you
may be found liable and the policy should cover you.
Many homeowners policies include a standard amount of liability coverage
of $100,000 or $250,000. Examine your policy. With the high level of jury
awards being given out in today's society, you may want to buy an additional
umbrella policy to provide additional protection. These "umbrella"
policies are usually inexpensive and can provide coverage up to $1 million
or more. Discuss this with an insurance agent.
Deductibles. The deductible is the amount of loss you are responsible
for before the policy starts to pay. The lower the deductible the higher
the insurance premium. Be sure to look at the options in your policy.
Many individuals use insurance purely as protection against major catastrophes
and choose high deductibles to save on insurance. High deductibles also
save the hassle of making a claim. Consider what level of loss you can
accept and choose your deductible accordingly.