RE Articles > Homeowners Insurance Explained


SigningAlthough no one wants to dwell on negative thoughts, when it comes to financing a home, it is essential to be prepared for the worst case scenario. All lenders require you to have theft, fire and liability insurance on properties to secure their loans. Depending on where you live, you may also have additional requirements such as flood insurance if you live in a designated flood area.

Generally, homeowner’s insurance offers protection in two areas. Casualty insurance covers losses or damages related to fire, theft and weather hazards. Personal liability insurance provides financial protection against someone who is injured while on your property. Other types of coverage can also be added.

The most basic homeowner’s policy covers the following eleven perils: theft, vandalism, explosions, falling aircraft debris, vehicle collisions, smoke damage, fire or lightning, civil commotions, windstorm or hail, malicious mischief, and glass breakage related to the structure. Homeowners should consider the lender’s minimum requirement when deciding on the amount of coverage that is needed. The minimum is usually the property’s purchase price less the value of the land. Additional coverage above that level is optional.

If you're looking for homeowner's insurance, you should base the amount of coverage on the replacement cost of the entire structure in addition to the value of your personal property. Make sure you do not insure your home for the current market value, which is the value your home would bring if sold today.

To estimate the replacement cost, multiply the square footage of floor space by the current construction cost-per-square-foot for similar homes. To find this information, try contacting a local builders association. For your personal property, make an inventory and check out current selling prices online. After you find a good insurance plan, it's very important to update your coverage when home market values change or if you make a major improvement your property.

If you’re thinking about selling your home, Click Here for a free home valuation.

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David Hill



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