Property Insurance Facts Every Owner Should Know

Property insurance is a “must have” for homeowners. Mortgage companies will require it, and even if they don’t, few people have sufficient financial strength to repair or replace a home and personal possessions in the event of total loss and protect against personal liability issues. While you want to keep your monthly premium as low as possible, you must balance this against having sufficient coverage.

Protecting Against Property Damage

If you have a mortgage, your lender will require property insurance. The amount the lender requires often is less than the amount you need. The lender is interested in protecting the house itself for which it has loaned you money. You will be interested in replacing your personal property as well, and property insurance policies can be tailored to your specific needs.

The cost of property insurance for damage or destruction of your house will vary depending on the age and condition of the house, where it is located and your demonstrated ability to pay the premium, among other factors.

If your house is damaged or destroyed, the insurance is designed to cover the construction cost of repairing or rebuilding. This might not be sufficient to bring your house back to its market value prior to the damage. This is an area where the lowest premium might not yield the best coverage for you, particularly if it is important that your home retain its market value after rebuilding.

Protecting Against Loss of Possessions

You property insurance should provide some coverage of personal possessions. However, there is a difference between the actual cash value method of payment and the replacement cost method.

If your policy replaces stolen or destroyed personal possessions with actual cash value, you will be paid what your possession is currently worth. As an example, if a $2,000 computer is destroyed, but it is three years old, you will get the estimated value of a three-year-old computer, even if costs $2,200 today.

In the replacement cost method, using the example above, you would receive an amount estimated to replace the possession you lost at current prices.

There is a limit to the amount of personal property covered. Most policies cover 40 percent of your total policy value. If your home is insured for $200,000, then personal property, such as furniture, decorative items, clothes and electronics, would be covered for $80,000. You can increase this amount by increasing your premium.

Protecting Against Liability Issues

Your property insurance policy needs to contain personal liability protection. This protects you in case someone is injured on your property. Often, homeowners buy what is called an umbrella liability policy that provides additional liability protection so that your personal assets are not put at risk if someone sues you.

Protection Against Floods

Property insurance policies do not protect against floods. The government offers a flood insurance program. Additionally, in most cases earthquake insurance will require buying a separate policy.

Costs Versus Benefits

The more protection you want including the amount of coverage in the policy, the “cost versus replacement” provisions and the type of personal possessions covered, the higher your premium will be. The higher the deductible amount of your policy the lower your premium will be. The deductible is what you pay before the insurance coverage begins to take effect.

 You can also reduce your premium, in many cases, by having smoke detectors and an alarm system. A good credit history and strong credit score can also help you negotiate premium reductions.

It is critically important that you read and understand the terms of your property insurance policy. The policy terms spell out what is covered, the dollar amount of coverage, your responsibilities and the insurance company’s responsibilities.


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