Since disasters are unpredictable, home insurance policy is a vital protection system for a homeowner to consider and ultimately purchase to protect themselves and their families. Therefore, every homeowner must be conversant with what and how home insurance policy works to enable them to make the right decisions.
Standard home insurance provides coverage for three fundamental requirements. These are explained below.
Building coverage – is the backbone of all home insurance policies. It covers an insured building’s entire structure, including walls, floors, and all fittings. Also, it protects the building against hail, fire, and burglary. The building coverage helps to repair or rebuild buildings that have been destroyed as a result of a disaster.
Content coverage – covers items such as clothing, furniture, electronics, and kitchen equipment found in a typical home. If any insured items are destroyed or damaged, the insurance companies pay for the replacement or the repair.
Personal liability coverage – covers damages, which happen as a result of a particular unforeseen occurrence. It also covers injuries caused by damage to some or all parts of a building.
Typical forms of home insurance policies protect homeowners from misfortunes such as fire outbreaks, floods, and burglary. It also provides cover for injury or harm to third-party individuals within an insured property. However, most home insurance policies may not cover severe events such as earthquakes, nuclear disasters, wars, and tsunamis.
Different types of home insurance provide different forms of protection to properties. In general, there are many forms of protection that homeowners can expect from home insurance policies. These are:
Actual cash rate – this type of policy pays for the replacement or repair of a property while considering its depreciated value. Therefore, a homeowner only gets paid equivalent to the worth of their property right before a disaster.
Replacement cost – covers properties by paying for the value of replacement cost. It does not consider the cash value of properties. It pays for the value of repairing or replacing damaged property.
Extended replacement rate – this form of protection covers a property even when the cost of construction or repair goes up as long as it does not exceed a predefined limit. Therefore, insurance companies and homeowners must agree on the highest amount to be paid in the event of a disaster.
These two types of insurances provide essential cover against damage, liability, to name a few. These are purchased by either the actual homeowner or a tenant. The fundamental difference between the two is the nature of the property each insurance covers. The renter insurance policy protects tenants against theft or damage to personal belongings or property. But, it does not cover damage done to a home. However, homeowner insurance covers the entire buildings or apartments, together with the owner’s personal belongings.
Apart from homeowner insurance and homeowner insurance, there are other types of home insurance policies that suit different needs. In most cases, additional insurance policies that are related to home insurance are purchased separately to supplement the basic home insurance policy. Also, the type of additions depends on the prevailing occurring disasters or problems within the geographic location. For example, an individual that lives in an earthquake-prone location may need to purchase an earthquake insurance add-on onto the primary home insurance. These types include the following.
There are many more types of add-on insurance policies. In many cases, an individual can arrange a customized add-on insurance policy that can provide sufficient cover as desired.
Like any insurance, no insurance home insurance policy is flawless. Also, as most people do not like the idea of thoroughly reading contracts, a lot can be missing or present that is not in the interest of the homeowner. In recent years, many insurance companies tend to make provisions that tend to shift significant responsibility to homeowners. Deliberate attempts are made by insurance companies to use hard to read grammar and words to trick less vigilant clients. Many companies do this to maximize profit and increase their company’s ability to pay out future claims.
Therefore, Homeowners must be aware of the common problems with insurance coverage. These are discussed below.