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Understanding Homeowners Insurance

By Thomas Mitchell

Homeowners insurance protects one of your biggest investments, your home. All home-insurance policies will provide financial coverage for your home, the contents of your home, and liability. Coverage varies however, between different policies. There are many different options for whatever your home-insurance needs may be. Homeowners insurance is a few different types of coverages combined into one deal. It often times includes damage to your house, reimbursement for any costs involved with the loss of use of your home, damage to any contents of your house, and liability for any negligent acts that may occur on your land. There are a few different types of coverage ranging from basic to complete coverage.

HO-1 coverage is like the basic package. It will cover you 11 basic dangers such as hail, lightning, fire, riots, explosion, vandalism, vehicles, theft, aircraft, smoke and volcanic eruption. HO-2 will cover all of the above including protection from snow and ice, heating, sprinkler or heating system accidents, plumbing accidents, air conditioning, electrical accidents and freezing of plumbing. HO-3 will provide the most coverage as it include everything stated above plus comprehensive coverage for you and broad peril coverage for your house. This means it will cover anything that wasn't specifically listed as well.

There are three primary levels of coverage when it comes to homeowners insurance. The first is actual cash value which means the insurer will give you the current value of your home, and belongings inside it, instead of the price you purchased them at. Replacement cost coverage will give you the amount of money you need to rebuild your home or replace anything you may have lost. The final type of coverage is guaranteed replacement cost. This level of coverage will provide as much as you need to rebuild or replace your home or belongings, up to as much as it will cost, even if the amount is above what the limit is supposed to be on your insurance. When buying home-insurance you must decide what your limit will be. That is, the maximum amount you will be insured for. Your limit should typically be the cost to replace your home and all of your belongings. Although be careful not let the insurer include the total value of your home in the limit, because that includes the price of insuring the land underneath your home as well. Since your land is unlikely to be damaged unless you live in a flood heavy area or something of the like, this is only going to unnecessarily increase your monthly payments.

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