When you purchase a home, and your mortgage lender requires you to obtain home insurance coverage, you are buying a type of property insurance. Before you decide on a homeowner’s policy—or any other type of property coverage—there are a few things you should know about this category of insurance.
- Property insurance is broken down into open perils and named perils.
Understanding open perils and named perils will help you shop for property insurance by telling you what is or is not covered by your policy. Homeowner’s insurance is an example of open peril coverage. Open peril policies cover any type of losses or damages that the policy writer did not specifically exclude from coverage. For instance, a homeowner’s policy will usually cover you in the case of theft, storm damage, fire, and more.
However, homeowner’s policies also typically have exclusions, such as floods or earthquakes. You may need to buy additional policies to obtain these types of coverage. Flood insurance or earthquake insurance, then, are examples of named perils, because they explicitly specify the perils that are covered right there in the insurance policy.
- You need to choose between replacement cost and actual cash value.
When you buy a property insurance policy, you are given the option to insure your property based on one of two reimbursement models. The first, replacement cost, insures your property for the amount it would cost to rebuild or replace. This model does not take depreciation into account. The second, actual cash value, insures your property for the amount it is worth right now, with depreciation factored into the equation.
- You may need a rider to cover valuable belongings.
A homeowner’s insurance policy doesn’t just protect the house itself. It also includes personal property protection for the belongings that you have in the house—such as furniture, electronics, and appliances. You can work with your insurance company to determine how much personal property coverage you should carry on your property insurance policy. However, there are limits to this part of the insurance policy. Particularly expensive or valuable assets—such as jewelry or priceless antiques and artwork—will often need to be covered under an add-on provision, or rider.
- Risk factors will impact your premiums.
Your property insurance premiums will be determined in part by the value of your property, how much personal property coverage your policy includes, and what your deductible is. However, your premium will also depend on factors that have nothing to do with you or the property itself. If your business is located in a neighborhood with a high crime rate, or if your home is located in a spot that tends to be a high-risk area for hurricanes, your insurance premiums are going to be more expensive. These higher prices are because your insurer is taking on more of a risk by insuring your property.
Keeping these points in mind as you shop for property insurance will help you find the coverage you need at the cost you want. If you have any questions about property insurance—or any insurance topic at all, for that matter—please contact me by filling out the contact form on the right-hand side of the screen.