Determining Your Home Owners Policy Needs
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Replacement Cost vs. Actual Cash Value Is the value of my personal property fully covered? What If I Live in an Apartment or Condominium? What If I Rent Property to Others?
Replacement Cost vs. Actual Cash Value
What type of policy should you ask
for? That depends upon your personal situation. Generally,
you should insure your home for 100% of its value (including its
contents) with a replacement cost policy. Then, if your house
costs $100,000 to rebuild from the ground up, that's what
insurance would pay in the event of a total loss. Likewise, if
shingles are blown off the roof or cabinets are damaged by fire,
no depreciation would be deducted even if the damaged property is
used and worn. If you are insured for actual cash
value, you will pay less for your policy, but you may not receive
enough money to replace your damaged property. Instead, you will
receive the amount your property is worth at the time of the loss
- its cost minus depreciation for age and normal wear and tear.
Some forms of property, such as fences, awnings and swimming
pools, are usually settled at cash value. So is personal property
such as appliances, furniture and clothing, unless you
specifically purchase replacement cost insurance.
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Ask yourself the following questions to decide how much insurance you may need:
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How much will it cost to replace my home today? Ask an
appraiser, builder or your insurance agent for an
estimate. If you make drastic improvements to your home,
such as remodeling or building a deck, you should update
your appraisal and coverage to compensate for the
increased value.
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Am I protected for inflation? Many companies
automatically adjust your premiums upward to cover the
rising cost of replacement. Otherwise, you should review
your policy once a year to see if you still have adequate
coverage.
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Am I planning any additions or renovations? Adding a
family room or renovating a basement will increase the
value of your home and the amount of coverage needed.
Is the value of my personal property fully covered?
If you have many valuable
possessions or have recently acquired new belongings such as
stereos, televisions, computers, cameras and musical instruments,
you may need to pay for increased coverage. Ask your insurance
agent if you are covered for specific items of value. If not,
consider purchasing extended coverage to protect jewelry, furs,
silver and the like.
Do I need any optional coverage? Some losses are specifically excluded in all policies, such as those resulting from floods and earthquakes.
If these are a danger in your area, you may want to obtain additional or separate coverage.
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Do I have an inventory of my personal belongings? Complete the room-by-room inventory at the end of this booklet, listing the approximate value of your possessions. Keep the completed list in a safe place outside your home, such as in a safe-deposit box or at your office. Photograph or videotape each room, if possible, and keep this visual record with your inventory.
What If I Live in an Apartment or Condominium?
If you own a condominium, the
condominium association may pay for the insurance protection on
your building, as well as liability protection if anyone is
injured in common areas. You may need to buy your own liability
insurance. Read your association's policy carefully to determine
if you are adequately covered, then purchase additional
protection if necessary. If you rent an apartment or house,
the owner's property and liability are covered by his or her
insurance, but your property and liability are not. You may be
held liable, as well, for damages to the owner's property done by
you. You can purchase insurance for your personal possessions as
well as liability protection under a renter's policy.
What If I Rent Property to Others?
You should have a separate policy
for dwellings you rent to others. Insurance will protect
the property itself as well as any of your personal belongings at
that residence. You also need business liability and medical
coverage for anyone who might get hurt on your property as a
result of your property or action. Ask your insurance agent for
details on these coverages.
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