Insurance Basics: Everything You Need to Know

Does Your Homeowners Insurance Offer The Coverage You Truly Need?

While you are required to purchase homeowners insurance when purchasing a home, simply purchasing a policy that satisfies the requirements of your mortgage lender may not be enough to ensure you are truly covered in the event disaster strikes. In fact, far too many homeowners don't find out until it is too late that their insurance policy does not offer the level of coverage they thought it did. Thankfully, you can avoid finding yourself in this same position by taking just a few minutes to evaluate some of the key coverage options included in your policy to ensure you have the protection you need and deserve.

Actual Value Versus Replacement Value

Homeowners insurance policies offer two different ways of assigning value to the items inside your home. These two different options are referred to as actual value and replacement value. Many homeowners choose to purchase an insurance policy that offers actual value coverage simply because they interpret this to mean they will receive what they actually paid for the items that were damaged. However, the name of this coverage option is a bit misleading and will often leave homeowners without the level of coverage they thought they had.

When it comes to homeowners insurance, the term actual value means that you will receive the actual value of an item at the time a loss is suffered. This means that depreciation will be assigned to the item and you could end up receiving a rather low payout for older items even though they were in usable condition prior to the events that resulted in you filing an insurance claim. On the other hand, the term replacement value coverage means that you will receive an insurance payment that compensates you for the actual cost of replacing your damaged items with items that are comparable in quality to the ones you lost. 

Flood, Hail, And Hurricane Coverage

While standard homeowners insurance will provide coverage against a wide range of damages, these policies often exclude damage that is done by flooding, hail, or a hurricane. This is standard practice in the insurance industry since homes in different areas of the country will be more prone to this type of damage than others. 

In order to ensure you are covered for damages caused by these types of natural disasters, you will typically need to purchase what is known as an add-on. This is simply additional coverage to be included in your homeowners insurance policy rather than purchasing a separate policy to provide coverage for these types of damages. While it is a good idea for all homeowners to consider adding these coverage options, it is especially important if your home is located in an area that is prone to these types of damages. Contact a group like Ronald H. Krupa Insurance Agency for more information.