Getting an insurance policy for your home can be confusing. With so many different variables for different things, it can be difficult to figure out how much you need. However, if you understand the basic concepts behind insurance, you can purchase insurance with more confidence.
Getting Started
A basic definition of insurance is “a thing providing protection against a possible eventuality.” When you purchase homeowners insurance, you are paying a little bit every month so that if something bad happens (fire, theft, etc.), the insurance company will give you money for your loss.
When you hear people say, “under insured” and “over insured,” it’s referring to how much coverage you have. It comes down to a basic question: if there were to be a total loss of your home, meaning the home and everything in it was damaged or lost, would you have enough coverage to replace everything? If you don’t, then you are underinsured. However, if you have coverage for more than the total amount of everything, then you are over insured.
In most cases, it’s better to be over insured. However, if you are over insured, you are paying extra on your premium every month, so you don’t want to be too over insured.
Value of Your Home
When you purchase homeowners insurance, there are two basic things you need to know in order to get the appropriate amount of insurance. The first is the value of the structure of your home. This is actually different from the value of your home because the cost to rebuild your home is, in most cases, less than the value of your home. Your insurance company should be able to help you figure this out.
Personal Property
The second thing you need to know is the value of your personal property. Personal property is essentially everything in your home that isn’t part of the structure. This would be your furniture, clothes, electronic equipment, musical instruments, etc.
Determining the value of your personal property can be the most difficult part of purchasing homeowners insurance. However, with a little thought, you can figure it out. Think about how much it would cost to replace each item in your home. For example, if you had to replace your existing couch, how much would that cost? Make a list and add it up. This will give you a ballpark of how much coverage you need.
Other Considerations
Liability coverage and additional living expenses are two additional major pieces of an insurance policy. Liability covers against lawsuits for bodily injury or property damage that policyholders or family members cause to other people. Additional living expenses will cover your living expenses if you cannot live in your home due to damage, like a fire.
You should work with your insurance agent to come up with a number that makes your payment (premium) affordable, while still keeping you comfortable with the coverage you have for these items.
If you have any questions about homeowners insurance and whether you have the right coverage, talk to your insurance agent.