While buying a home can be a daunting task, buying home insurance for the first time can be overwhelming. Home insurance is not a luxury but a necessity. Whether required or not, one must go for it as it’s smart to have this kind of protection. Even if you do not own a house, many landlords require tenants to have renters’ insurance coverage before renting their property. Here is all that you need to know about home insurance.
What is Home Insurance?
Home insurance provides protection to the property against uncertain losses in exchange for a certain fee that you pay to the insurance company. It protects your home and its possessions against damage or theft. It will make the insured financially whole following a loss.
Types of Coverage
Every insurance policy is different and hence you need to research before taking the salesman word for it. There are three levels of coverage on the basis of which these policies work:
1. Actual cash value
This type of insurance coverage will cover you for the cost of the house and your belongings in it, excluding depreciation.
2. Replacement cost
This type of insurance will cover for the actual cash value but without deducting depreciation, assisting in rebuilding your home to the original value.
3. Guaranteed replacement
This is the most comprehensive type of home insurance and hence covers all the costs, even if it exceeds the policy limit. However, there’s a ceiling in this, which is generally about 20-25% of the total policy limit.
Several insurance companies also provide liability coverage in addition to the value of the house and its contents. While this term is well known to automobile owners, homeowners might be lesser known to this term. This type of coverage protects you against the legal costs that might occur when somebody files a lawsuit against you due to property-related accidents.
Who must take it?
Home insurance is for everyone. That said, both homeowners and landlords can take home insurance policies. If you own a home then you must take a comprehensive insurance policy. However, if you are a tenant then just insuring the contents of the house will do, as the property will be insured by the landlord.
What determines the insurance rate?
The Insurance companies charge according to past home insurance claims, homeowner’s credit score, and age and location of the house. Also, the severity of the claim plays a significant role in the insurance rate. The higher the risk applicable more is the insurance rate.
In all, different insurance providers have different terms of coverage and cost. You must not just take a guess but rather know what all the policy covers to avoid any pitfalls.