Ins and Outs of Homeowners Insurance

If you have looked at your monthly mortgage statement, you have probably seen a line for insurance. You may have even received an insurance bill annually. Here is what you need to know about homeowners insurance.

Homeowner’s insurance is often included in your monthly mortgage payment. Your mortgage consists of principal, interest, taxes, and insurance.

Homeowners insurance usually covers damage to your home’s exterior, interior, and possessions. It can also include personal liability coverage in the event that other people are injured on your property.

You can choose between a cash value policy, replacement value policy, or extended policy.

Cash Value Policy: Covers the actual appraised value of the home and possessions, less depreciation. So if you purchased your large sectional five years ago, the cash value policy will value it at less than the purchase price.

Replacement Policy: Covers the amount that it would take the actually rebuild and replace the home, usually more than the appraised value. Your policy will cover the cost to replace that large sectional with a new model.

Extended Replacement Policy: Covers additional costs associated with replacing the home, even if the costs exceed the actual value of your policy. This keeps inflation in mind, since the rebuild cost of your home will likely be higher in 15 years than it is now when you purchase your policy.

Keep in mind the homeowner’s insurance, like most types of insurance, is very customizable. You can agree to a larger deductible or lower coverage to keep your monthly premiums down. Your mortgage company will likely have minimum coverage requirements that you will need to carry to be approved for the loan. Check with your lender to find out what their minimum insurance requirements are.

When you are ready to purchase homeowner’s insurance, start by talking to the insurance agency where you have other types of insurance, such as automobile, life, or disability insurance. You may be able to bundle your policies and receive discounts. You should shop around for the best insurance coverage that you can afford at a reasonable premium price. You can also ask your lender or realtor for recommendations if you are unsure where to begin.