The one certainty in life is that nothing is certain. Disaster can strike when we least expect it, and leave use feeling totally helpless in the face of it. With new home purchases, you clearly want to do everything you can to protect your massive investment. It’s for this very reason that homeowners insurance was created. You may be asking right now what this has to do with home equity, and the answer is quite simple: If you lose everything in a disaster, what will the equity of your new home purchases be then? Aha, now are you more interested in learning about homeowners insurance?
Simply stated, homeowners insurance protects your home and possessions against various disasters that could occur, ranging from fire to theft to natural disasters. When initially considering what insurance policy to purchase, the first thing you need to do is to figure out home much your home is worth and how much your personal possessions are worth. Your house is considered your real property and your personal items are referred to as your personal property.
You can calculate the value of your house either by the amount you would get if you sold it, or by how much it would cost to rebuild it from scratch. Both methods will give you a fairly accurate figure. After having this figure, you can then purchase a policy. As long as your home is insured for more than 80% of its value, you will get full coverage should disaster strike. Real property value is fairly straightforward and easy to calculate. It’s personal property where things get a little trickier.
The first step to getting your personal property value is to inventory the items in your house as accurately as possible. Electronics, tools, furniture, kitchen appliances, and any other valuable items should be included in this inventory. Try to make at as accurate and thorough as possible, as this is what will be used to help you replace anything that is lost. The way the coverage usually works is as follows: Your personal property coverage is usually about half of your real property coverage. If you have many valuable items that will cause your personal property value to exceed this 50%, you will want to take out floater policies on these items. Items covered by floater policies include electronics, jewelry and antiques. You can also collect on these items alone should something happen to them if you have a floater policy. It’s also important to note that personal property will usually be insured for what it’s worth at the time of the loss. Since most items depreciate over the years, you will get what the current market value of that item is. After you have compiled this inventory, keep it in a safe place, and update it as you add or subtract possessions.
The final basic thing about homeowners insurance you should know is the importance of getting the right policy for you. Each policy is different, and coverage may vary. It is most important to have your actual housing structure covered as well as the belongings inside. Also, buy only what you need. If you live in Alaska, it would probably be better to be covered in the event of an avalanche as opposed to a hurricane. Make sure you understand all the details of your policy so you won’t be left in the cold when you need to cash it in.