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Home Insurance Necessities

Homeowner’s insurance, or hazard insurance, provides protection from damage or the total loss of your home as well as limited liability coverage for anyone who has an accident on your property. But that may not be all the coverage you need. Certain variables aren’t covered by a typical policy, so you need to find out what coverage you need for your type of home and your area of the country.  

A basic HO-1 policy will cover fire, lightening strikes, explosions, vandalism, theft, and limited liability, but it doesn’t cover personal possessions. The HO-3 provides comprehensive coverage, including loss or damage to personal property. Be sure to purchase insurance riders for valuables such as heirlooms, jewelry, antiques, fine art, and rare collections. 

Lenders require borrowers to escrow a year’s worth of homeowner insurance policy payments for new loans and to maintain enough coverage to pay the mortgage off in case of a total loss.  But insuring the mortgage only leaves you with too much liability. Instead, get a guaranteed replacement homeowner’s policy which will be far safer, especially with building costs constantly rising. In the event of a total loss, your home can be completely rebuilt. 

A better way to save money on your policy is to choose a higher deductible, or combine your homeowner’s insurance with your car insurance. Many insurance carriers will lower premiums if you buy coverage for multiple items. 

Flood insurance 

And speaking of riders, take a look at your homeowner’s insurance policy, and you may be surprised to learn you’re covered for some water damage, but not for flooding. Flood’s water, isn’t it? Yes, but there’s a difference for insurers. Basically flooding is considered water that breaches the home from the outside, as opposed to an appliance leaking water all over the floor. 

In areas prone to hurricanes or earthquakes, greater coverage must be purchased through riders at additional cost. According to the National Association of REALTORS, approximately half of all flood disaster declarations since 1990 occurred in land-locked states, and flash floods have been reported in all fifty states. Yet only 12 percent of U.S. homeowners have flood insurance.  

Consider flood insurance for natural disasters where water can breach the home from outside. 

So why isn’t water damage from catastrophic events like flooding, earthquakes and hurricanes included? Adverse Selection is an industry term that simply means that the insurer can’t collect enough in premiums to cover the risk. Some insurers offer private flood insurance to high-end homeowners in limited groups, or they may offer limited coverage to policyholders that are part of the National Flood Insurance Program (NFIP), a federal program designed to help homeowners coverage for up to $250,000 for the structure of the home and up to $100,000 for personal possessions.

When you talk to your insurer, be sure to ask plenty of questions, so you’ll end up with the best insurance plan for your new home.