Chapter Fourteen

    Several weeks before your closing you should get in touch with your insurance company to let them know that you are purchasing a home.   They will prepare an insurance binder which can be sent to you or to the office of the closing attorney.   This is done so that when you leave the closing  your new property will be immediately covered.  The policy is required by your bank, since your home will be collateral for the loan.

     A standard homeowners' insurance policy provides four types of coverage:

     1.  Coverage for the structure of your home;

     2.  Coverage for personal belongings;

     3.  Liability protection;

     4.  Living expenses in the event you are temporarily unable to live in your home due to a fire or other insured disaster.

Property Structure Coverage 

     Most standard policies will pay to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disasters that are listed on the policy.  They will not ordinarily pay for flood or earthquake damage.  If you want or need this coverage it is sometimes available at an additional cost depending on what part of the country you are buying in.

     A typical policy will also cover detached structures such as tool sheds, gazebos, or a detached garage.  

     In determining how much insurance you need to cover your home, your agent will calculate the cost of rebuilding the structure at current construction costs.  The cost of the land is not included in this figure.  The insurance should be at replacement cost which will pay for repair or replacement of the damaged property at today's value with no deduction for depreciation. 

 Personal Belongings

     In case of fire, hurricane or theft, your furniture, clothes, sports equipment and other personal items are covered.  The coverage is usually 50% to 70% of the amount of insurance you have on your home.  As an example, if you had $100,000 worth of insurance coverage on the structure of your home, you would have $50,000 to $70,000 worth of coverage on your belongings.

    In order to calculate the proper amount of coverage you need for personal items you should take an inventory of everything you own and be able to put an approximate price on those items.  As part of your inventory take photos or  videos of your items and place them in a fireproof safe.  

     For coverage of personal items, you can insure them at cash value or replacement cost.  Cash value will pay the cost of replacing your items minus depreciation.  Replacement cost will reimburse you for the cost to actually replace them.   If you have jewelry and silverware, there are usually limits to their coverage in your homeowner policy.  Typically, you would be covered for $1,000 to $2,000 on these items.  If you want to insure them for full value, speak to your agent about a floater policy or rider with no deductible.

Liability Coverage

     This is coverage to protect you against lawsuits in the event someone is injured on your property.  There is usually also a provision that will cover an event in which  you, your children or pets accidentally ruin property belonging to a neighbor.  

     Experts advise that you purchase at least $300,000 worth of liability protection.  If you feel you want more, an umbrella policy is something to consider.  This type of  policy takes up where your standard coverage ends.  These policies can provide coverage on claims against you for libel and slander as well as higher liability amounts.  An umbrella policy generally costs between $200 to $350 for $1 million of additional protection. 

Additional Coverage

     This part of your insurance pays the costs of living away from your home in case you suffer a covered disaster such as a fire or storm.  It will pay hotel, restaurant and other expenses you incur while your home is uninhabitable.  The coverage is typically 20% of the insurance on your home.