Nearly everyone has some form of homeowner’s insurance coverage. The function of this type of home insurance is to reimburse the insured if their home is damaged or lost due to fire, storms, theft and other such disasters.
The purpose is to cover incidents that occur from events that happen through no fault of the homeowner and situations that do not occur due to neglect.
Most homeowner policies will not cover poor maintenance, floods, or earthquakes. The coverage for floods can be obtained through the Federal Government and coverage for earthquakes can be obtained through some private insurers. Homeowners who live in California can get it from the Earthquake Authority.
Understand The Two Types Of Homeowner’s Insurance Coverage
It is very important for a homeowner to understand two types of homeowner’s insurance coverage.
Cash Value Coverage
One type is called cash value coverage. This form of policy is less expensive, in that it is based upon the initial value of the house and contents when the policy is issued. The claim is paid on that value, which could be out of date in relation to a current value of the property and contents at some date in the future.
To put it another way, the ultimate claim may only pay out a percentage of the current value of the property, because current prices have inflated to a higher amount over a period of time.
Replacement Cost Coverage
The second form of policy is called replacement-cost coverage which will pay an amount at claim time that is based upon the cost of rebuilding a home which is destroyed or damaged, with the type of materials that are similar to the original ones from which the home was originally constructed.
The same would hold true with items that would be lost such as furniture, utensils, computers, clothing, televisions, and the like. The idea is to replace as much as possible based upon current cost for the same materials.
The cost for a replacement cost type of policy is usually 10 to 20 percent higher, but may be worth the increased premium because of the up-to-date replacement of nearly everything that you own.
When you stop and think that if a major disaster occurred which wiped out your home, you could be left with absolutely nothing in the way of material items. You can readily appreciate the functions of home insurance and how incredible this type of protection can be.
A good example is the rash of recent tornadoes in Moore, Oklahoma, where miles of perfectly well constructed homes were literally wiped off of the face of the earth due to the incredible power of the storms. Without adequate homeowner’s coverage, these families would be facing an economic disaster in addition to the physical disaster of the storms.
Get An Appraisal Done And Store It Off Property
An excellent project is to measure the square footage of your home, or have an appraisal done. Put the results in a separate place, such as a safe deposit box. Take an inventory of all of your material possessions and do the same thing in storing the results.
If you should suffer a loss from a fire or a storm, then you will have a current valuation of everything. Then it would be a good idea to evaluate the feasibility of purchasing a replacement-cost policy.
If a major catastrophe were to hit your home, you would not regret the decision for a minute, and now you would fully understand the functions of home insurance