Many first-time homebuyers mistakenly believe that purchasing their dream home will be as simple as finding a home they love, making an offer, and then closing on the deal with their lender and the seller. However, there are many additional steps that must be taken before a real estate deal can be completed. One of these steps is the need to acquire home insurance.
Much like you are required to carry car insurance in order to drive, you must purchase homeowners insurance if you own real estate. Thankfully, the tips below can help guide you through the process of buying your first homeowners insurance policy without making some of the most common rookie mistakes.
Actual Cash Value Versus Replacement Value
It is quite common for people to assume that policies that offer actual cash value for their personal property are providing them with the highest level of coverage. However, the fact is that policies that offer replacement value coverage rather than actual cash value coverage are typically the better deal. This is because if your policy only allows for actual cash value, you will typically only receive the current value for items after depreciation is assigned. This could leave you dealing with some huge out-of-pocket expenses.
Take a moment to consider this example. Your kitchen is flooded as the result of a burst pipe and all of your lower cabinets are destroyed. It has been nearly a decade since these cabinets were installed. A homeowners insurance policy that offers actual cash value will assign a relatively low value to the cabinets because of the depreciation they accumulated over the last ten years. A policy that offers replacement value, on the other hand, will provide you with the coverage you need to replace the cabinets with a comparable product.
Rebuilding Costs Versus Resale Value
One of the most important parts of securing a quality home insurance policy is ensuring you have enough coverage to rebuild your home if it is destroyed as the result of a natural disaster or fire. Many first-time homebuyers often believe that this means they need to purchase a policy that offers coverage equal to the resale value of their home. However, resale value and rebuilding costs can be quite different. This is because the resale value of your home includes much more than just the structure you call home. It also includes the land that the structure is built on, along with any secondary structures, such as a shed or detached garage.
Even if all of the structures on your property were destroyed, you still would not need to replace the landscape when rebuilding. Therefore, the cost of rebuilding will often be significantly lower than the resale value of your home. Keeping this in mind when purchasing your homeowners insurance policy will ensure that you are not wasting money by carrying more coverage than you truly need.
For more information, contact a home insurance company near you to learn more.
Purchasing insurance — the right insurance — is one of the smartest things you will ever do. While there are definitely differences between homeowners, car, life, and health insurance policies, they all serve the same purpose when it comes down to it. Insurance protects you against financial ruin should a tragedy happen in your life. In the case of homeowners insurance, that tragedy could be a fire or a flood. In the case of life insurance, that tragedy would be your death. The more you learn about insurance, the better the decisions you'll make when purchasing it. So dive into the articles here, and start reading.