| Homeowners insurance consists of both liability and property
protection. The liability portion covers you for legal liability
from negligence if someone is injured while on your property or
if their property is damaged. Property protection covers your dwelling
as well as your personal belongings.
Replacement Cost vs. Actual Cash Value
These are terms used to determine the value of the property you
own. Your policy will define the method used to determine the value
of your property for replacement purposes. Replacement Cost is the
cost to replace your property with property of similar material
and quality. The definition of Actual Cash Value can vary. Basically
the difference between the two methods is that Actual Cash Value
accounts for depreciation. An example would be a television that
you paid $500 for ten years ago. Over the past ten years its value
has depreciated to a value below $500, but the cost to replace the
television with one of similar size and quality today may be more
than the depreciated value. It is important to understand how your
policy will determine the value of your property in the event of
a loss.
Coverage for your home
Homeowners insurance covers the cost to rebuild or repair damages
as the result of a covered loss. Your policy will list events that
are not covered (floods or earthquakes typically require a special
policy). It can also pay certain expenses that you may incur if
you cannot live in your house during repairs for a covered loss.
Coverage for your personal belongings
Homeowners insurance also covers the cost to replace items that
are stolen, damaged, or destroyed, as the result of a covered loss.
Some items (cash, jewelry, furs, etc) may be subject to certain
limits and may need to be listed separately depending on their value.
Taking a home inventory is a great way to determine the limits
of coverage you need for your personal property. It will also help
in the event of a claim. It's a good idea to update this inventory
a few different times during the year. There may be special items
displayed only during certain times of the year. A good way to make
a quick list is to take photographs of each room or even a videotape
of the entire house. You should keep your list, photos, and/or videotape
in a safe location outside the home. |