Purchasing homeowner's insurance is not only critical for protecting your home and personal property against any potential liability; if you have a mortgage, your lender will require it.
A homeowner's insurance policy is a package of coverages, including:
Remember, these coverages pertain only to losses caused by a peril covered by your policy. For instance, if your policy doesn't cover earthquake damage, then losses will not be reimbursed.
The types of covered perils will depend on the type of policy you buy.
The Special Form is the most popular policy since it insures against all perils, except those specifically named in the policy. Common exclusions include earthquakes and floods. Typically, flood insurance is obtained through the National Flood Insurance Program, while earthquake coverage may be obtained through an endorsement or a separate policy.
Your policy will impose limits on the amount of covered losses.
If you have a valuable art collection or jewelry, you may want to secure additional insurance on those items.
Be aware of whether your policy insures for replacement cost (pays the cost to rebuild your home or repair damages using materials of similar kind and quality) or actual cash value (home value based on age and wear and tear), which may not cover all your losses.
Individuals with significant assets may want to consider attaching an umbrella policy to their homeowner's policy, which provides liability coverage in excess of the liability limits of your current policy.
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