All too many homeowners rush into a policy before they understand precisely what it includes and does not include. This can lead to surprise costs that you may not expect once a claim is made. It is beneficial to answer certain questions in regard to your homeowners insurance needs and how homeowners insurance works before you begin your policy.
Questions To Ask About Homeowners Insurance
You should have a clear understanding of what a standard home insurance policy includes and what additional coverages you may need to ensure you are adequately covered.
You should also have answers to important questions such as whether you should choose actual cash value or replacement cost coverage. The following are six questions you should ask about homeowners insurance before starting your policy.
What Does A Standard Homeowners Insurance Policy Include?
Most standard home insurance policies cover the most common costs related to your home and property. The primary purpose of a standard home insurance policy is to cover the cost related to replacing your home or the damaged parts of your home. Notably, your standard home insurance policy should cover damage related to:
The coverage with a standard policy likely extends to other structures and personal property, although this typically comes with strict limits. Many standard policies also include loss of use coverage (ALE insurance) as well. This covers the cost of hotels, meals and storage if you are forced to vacate your home after a covered event occurs.
What Perils Does My Home Insurance Policy Not Cover?
The most notable perils that are not included in a standard policy are earthquakes and floods. This means any damage that occurs to your home or other structures is not covered by your standard policy.
Instead, you will need to purchase a separate policy if you desire. In addition, it is important to understand your limits with your coverages. For example, liability coverage typically has a limit of no more than $100,000.
For personal property, your coverage typically includes up to 50 or 70 percent of the structure of your home (dwelling coverage). Your other structures coverage and loss of use coverage will also have limits that you should understand as well.
What Is Additional Living Expenses (ALE) Coverage?
Additional living expenses coverage, also called loss of use coverage or ALE coverage, includes expenses that are required due to the damage of your home but not directly tied to the repair and replacement costs. For example, if your home is damaged by fire and you are forced to vacate while the repairs are made, then your provider may cover your:
- Hotel costs
- Food and drink
- 0Pet boarding
It is important to understand your limits with ALE coverage to avoid any high out-of-pocket costs. Often, the policyholder pays for the expenses initially and then is reimbursed, although they may be able to receive compensation for their expenses ahead of time as well.
Do I Want Actual Cash Value Or Replacement Cost Coverage?
One of the most important determinations you will need to make is whether you want replacement cost coverage or actual cash value. Replacement cost coverage covers the cost of your home at its replacement value without considering deprecation.
Actual cash value provides you with the cost to repair or replace your damaged property after depreciation is subtracted. Be sure to discuss the pros and cons of each with a homeowners insurance agent.
Should I Buy Flood and Earthquake Insurance Separately?
As mentioned, floods and earthquakes are not covered by a standard homeowners insurance policy, so you should consider purchasing flood and earthquake insurance separately. Although this is not necessary, it can help minimize the financial risk if you live in an area where there is a higher chance of a flood or earthquake.
What Level of Liability Coverage Do I Need?
Liability coverage protects you financially if a lawsuit is filed against you. This typically includes the cost of defending you in court and the payouts that result from the lawsuit. Liability coverage typically covers up to $100,000, although the limit varies widely based on the specific details of your policy.
You should consider the extent to which you require liability coverage by assessing your risk and risk tolerance. You may be able to increase your limit or purchase an umbrella insurance policy to protect you from any costs that exceed your limits.
Get In Touch With Merchant Family Agency To Learn More About Homeowners Insurance
If you are in need of a homeowner insurance policy or are considering a switch from your current insurance provider, then call our insurance professionals at Merchant Family Agency today. We can personalize your homeowners insurance policy to ensure you receive the coverage you need without paying for coverages that may not be ideal for you.