Home insurance comes with numerous benefits. But if you aren’t careful, you might end up breaking your bank and only invite more financial trouble into your life. So, how do you identify an affordable option? Here are some of the factors you should take into consideration before purchasing home insurance.
Budget
The first thing you need to do is to calculate the overall cost of replacing your home in case of a total loss. It’s what it would cost you to rebuild your house in the same location using the same materials. However, it’s important to note that this amount could be vastly different from your home’s market value. If you’re unsure about this, ask a professional to provide you with a clear estimate.
Make sure that you get enough coverage for all your possessions. For instance, if the cost of rebuilding your home is estimated at $250, you’ll want about 125,000 dollars to cover your belongings. To get a more precise estimate, consider performing a home inventory, where you list all important items, as well as, their values. Expensive items like jewelry and fine art might require add-on coverage. Also, avoid common home insurance mistakes.
Liability Coverage
Liability is another important aspect. What will you be responsible for in case someone gets hurt on your property? A standard policy typically includes a minimum of $100,000, but insurance experts usually recommend $300,000 to $500,000.
Understand Special Situations
When shopping around for a home insurance policy, you may want to factor in certain special situations. For instance, you should think about where you would live in case a disaster destroyed your home. A standard policy typically provides 20% of the rebuilding cost for you to use in such a situation. But still, you have an option to purchase additional coverage.
It’s also important to consider if your property is at risk for disasters that aren’t covered by standard home insurance, like floods and earthquakes. For such situations, you’ll need a separate policy to safeguard your home.
The Coverage Level
Even after determining the cost of your coverage, you’ll still need to choose between different levels of home insurance coverage.
Actual cash value—this type of coverage factors in your home’s depreciation value as well as that of your personal belongings. And it only pays for what these things would cost today.
Replacement cost—this form of insurance doesn’t usually factor in depreciation. However, the payouts are subject to specified policy limits.
Guaranteed replacement cost—just like replacement-cost insurance policies, guaranteed replacement policies don’t also factor in depreciation. Nonetheless, they allow you to exceed your policy limits, meaning that you can pay whatever amount you want to replace your home and personal belongings.
Since these types of policies are very costly and may be hard to find, some insurers opt for extended replacement cost coverage instead.
The Bottom-Line
If there’s something you should invest in, it’s home insurance. It offers protection to your home’s structure as well as your personal possessions. Even more, it provides liability protection and caters for medical expenses incurred if someone gets injured within your property. Above are some of the things you should consider when shopping around for a home insurance policy. Compare home insurance on Money Expert and get the best quote today!