Basics of Homeowners Insurance

Written by Sanford Ellowitz on February 9, 2010 & Posted in Home Insurance

When selecting homeowners insurance, keep in mind that homeowners insurance coverage insures both your home and your personal possessions.

How Much Coverage Do You Need?

How much you need depends on the value of your house. You can get an estimate by checking the sale price of comparable homes in your neighborhood (comps). Even with the downturn in the housing market, you may be surprised by how much a home may cost, especially if you bought your home a while ago.

You can also consult a local builder to see what it would cost to replace your home with new construction. Take into account that you own the land that your house is built on, so you should not include its cost in the estimate.

Choosing the Best Type of Coverage

The type of coverage you have in your homeowners insurance policy can make a big difference if you have to file a claim. Here are the different coverage types:

Cash Value

Cash value pays just that, the cash value of your existing dwelling. This doesn't account for what it would cost to replace your home, particularly if you live in an older home. Because new construction often has to abide by stricter codes, replacing your home could cost much more than the current value--especially if your home has not been updated recently.

Replacement Value

Replacement value coverage pays you what it would cost to replace your home--up to the limit specified in your policy. You are likely to get a higher payout than with cash value.

Extended Coverage

Extended coverage is an option that ensures that you are paid enough to fully replace your home, even if the cost exceeds the limits of your policy.

Applying Your Coverage to Personal Property

You also have coverage options when it comes to personal property, such as your furnishing, carpets, clothes and other possession.

Here is how you might apply your coverage options to your personal possession:

  • Cash Value. This coverage pays you what your possessions are worth, not their original purchase price or what it would cost to replace them. If, for example, you carpeted your home several years ago, its cash value would be negligible
  • Replacement Value. This coverage takes into account what it would cost to purchase new items, not their actual cash value

When choosing the option best for you, keep policy costs in mind and how much you might pay on your own for any loss or damage to your property.

To compare rates for homeowners insurance, just enter your zip code in the form above.



About the Author

Sanford Ellowitz is a New York State licensed insurance agent. He is also a Certified Financial Planner and a Certified Employee Benefit Specialist. He has over 25 years experience in the insurance and financial services industries. His experience includes financial analysis, product development and marketing. He provides insurance planning and product sales.


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