Homeowners Insurance

Remember the Great Fire of London? Harken back to those history class days, as the Great Fire of London was a real killer. The scene is set – 1666 – and London witnessed an absolute rager of a fire, destroying over 13,000 homes and literally altering the lives of thousands of families as a result. From the insurance perspective, this was a disaster because none of the homes were insured. Policies did exist in this time, but they were quite narrow in their purview. Each policy would only cover a specific “peril,” so if said peril didn’t affect your home (but another did), you were out of luck.

Today, thankfully, multiple perils are included in nearly every basic homeowner’s insurance policy. They cover destruction or damage to the property (interior and exterior), loss or theft and personal liability for harm to others. In general, three basic coverage levels exist: replacement cost, the extended replacement cost/value and the actual cash value. Rates are determined by the insurer’s risk that a claim will be filed, and this risk is based on the past claim history associated with the home.

Diving deeper, regarding exterior and interior damage to the home, if you suffer damage as a result of a fire, lightening, vandalism or a hurricane, the insurer will compensate you, allowing for the rebuild of the home. Destruction however from earthquakes, floods or poor home maintenance is typically not covered, and if it is will need a specific, additional policy. If clothing, appliances and furniture are damaged, most homeowner insurance policies will reimburse you, although the worst part about this process is itemizing what you have in your home is laborious and next to impossible. We feel for you if you need to embark down this path.

Returning to the basic coverage levels, replacement cost policies cover the actual cash value of your possessions or home (not counting the deduction for depreciation) which results in being able to rebuild your home back up to the original value. The extended replacement costs/value policy is by far the most comprehensive, serving as an inflation-buffer policy that will pay for whatever you need to rebuild your home (even if it exceeds the policy limit). Some insurers might offer an extended replacement, but a ceiling with offers like this are common, typically 20% to 25% higher. Regarding actual cash value policies, these cover the cost of the home plus your total belongings value. Again, tough to calculate, but we all try. You do need to deduct/account for depreciation as well.

The one part we haven’t mentioned … get homeowner’s insurance! Don’t screw around with this one ladies and gentlemen, like all the other insurance we’ve spoken on here, it’s vital, will save your life (financially), and protect your loved ones. Enough said.