Buying your first home is exciting; however, it can also be pretty stressful. There are a lot of things that need to be taken into consideration and steps that need to be taken before you can sign on the dotted line and receive the keys to your new castle.
Of all of the things that need to be taken care of, getting your home insured is one of the most important. In fact, you won't be able to go to closing without it. If you're new to the home buying experience, you may be confused when are shopping for insurance for your house. There are a few different types and you may not know what you really need and what you can do without. To ensure you, your home and your lender are well protected, and that you aren't spending unnecessary money on coverage that you don't need, determine exactly what type of insurance you need well in advance of going to closing.
Standard Homeowners' Insurance
The standard homeowners' insurance policy provides protection against any damage that may be done to the inside or the outside of your home in the event of a natural disaster (fire, falling limbs from high winds, etc) or vandalism. With this type of standard coverage, your insurance agency will cover the cost of the repairs and may even cover the cost of a complete rebuild, if it is deemed necessary.
This type of policy will also provide coverage for damage that may be done to any of your personal effects, such as furniture, clothing and appliances. Should your home be burglarized, your policy will cover the cost of anything that was stolen.
If you live in an area that is prone to flooding, or where flooding could easily occur, flood insurance is an additional coverage that you're going to want to purchase, as a standard homeowners' insurance policy typically does not cover flood damages. However, do keep in mind that if you live in an area where the chance of flooding is slim-to-none, there's no reason to have this additional rider added to your standard policy.
Forms of Coverage
There are three different forms of coverage, including:
- Replacement cost – This type of coverage doesn't take depreciation into account. So, for example, if your house is destroyed by a fire, but the value of the home had depreciated since you purchased it, you would still receive the full amount of the value of the home at the time of purchase.
- Cash value – You will receive the amount that your home and personal effects after the depreciation value. So, if your home was worth $280,000 at the time of purchase, but at the time of damage it is only valued at $230,000, you will receive the lower amount.
- Extended replacement cost – This provides coverage that exceeds the amount of coverage you purchased; however, there is usually a limit on the value the insurance agency will cover past the initial value.
Understanding insurance can be trick, but it's a necessity when becoming a homeowner. If you are unsure of exactly what type of coverage you need, contact an independent insurance agent like The Flechsig Insurance Agency Inc to discuss your options so you can choose the best coverage for your needs.