Your home likely represents the single biggest investment you’ll make over the course of your life. While you might balk at the thought of adding an additional expense on top of your already sizeable monthly mortgage payments, in the case of homeowners insurance this fee is a necessary precaution for protecting your real estate investments in the long-term. In addition, any mortgage lender will require you to obtain adequate insurance before approving a loan on your property.
However, just because you recognize the need for homeowner’s insurance doesn’t mean you know which policy suits the requirements of your real estate investment the best. After all, there are a multitude of coverage options available, each with their own advantages and limitation. If you’re having trouble figuring out which insurance option to choose, here’s a handy guide to help you out.
Basic Coverage
A basic policy will cover your home for at least 80% of its value (discounting the value of the land). Coverage extends to your dwelling (the house itself), connected structures (shed, garage), and some of the personal property within your home. In the event that your house is rendered unlivable due to a covered circumstance, the policy will also cover some of the living expenses incurred due to the loss of use.
Most basic policies will cover damages due to:
- Fire
- Lightning
- Hail
- Theft
- Loss or damage of personal property
Extended Coverage
Results from a survey undertaken by the National Association of Insurance Commissioners reveal that at least a third of American homeowners are completely unaware of what their homeowner’s insurance policy actually covers.
Generally, the following issues require additional policies to be purchased:
- Earthquakes
- Flooding
- Mold-related damages
- Acts of war
- Slow deterioration of housing elements (Most homeowners insurance options will only extend to sudden, unexpected causes of damage – so any property damage due to old age or disrepair will likely not be covered.
- Liability ( if someone is injured on your property and attempts to sue you for damages)
In addition most policies have clear terms denying coverage in cases where extreme neglect on the part of the homeowner causes damage to occur.
Coverage Limits
Your insurance coverage can pay out damages on your real estate investments in a number of different ways. If the language of your policy states that you’re entitled to actual cash value, then you’ll likely receive a check for the appraised value the items before the damage, loss or theft occurred.
If you’re entitled to replacement cost on your assets, then you will receive a check for the amount it takes to purchase a replacement minus the deductible. If you’re promised guaranteed replacement cost, then these damages will be covered even if they exceed the coverage limit of your original policy (usually capped at 20% above).
Although replacement cost coverage will generally cost you 10-20% more than actual cost value coverage, the latter is clearly a more worthwhile investment.
Still aren’t sure about your Homeowner’s Insurance?
Christopher Lechner brings specialist expertise and proven experience in every aspect of real estate investment, and can provide you with expert guidance in your search for the right insurance policy. Call Christopher now at (565) 221-0055.
Published on 2018-01-30 16:12:40
