Choosing household insurance
Household insurance is an important financial decision. It helps protect you in case of theft, fire, or other unforeseen problems. It also protects you if someone is injured on your property of their property is damaged while at your home. Therefore, choosing household insurance requires careful consideration in order to find the policy that is best suited to your needs.
Choosing Household Insurance: Replacement Cost or Actual Cash Value?
One of the decisions you will need to make when choosing household insurance is whether you want replacement cost or actual cash value coverage. Replacement cost coverage reimburses you the amount of money it will take to replace your belongings if they should be stolen or damaged. Actual cash value coverage, on the other hand, reimburses you with the replacement value at the time of the loss. This value takes depreciation and wear and tear into account. Therefore, a television that cost $500 but is now ten years old may only bring in a $50 actual cash value reimbursement. With replacement cost coverage, however, you would receive the entire $500.
As you might suspect, replacement cost coverage is more expensive to maintain than actual cash value coverage. Discuss the cost differences with your agent in order to determine if the extra cost of replacement cost coverage is worth it for your unique situation.
Choosing Household Insurance: Consider Limits on Coverage
Generally, the insurance company will place limits on the coverage allowed for certain items, such as jewelry or other luxury items. If you require extra coverage for certain high-value items, you will need to purchase an endorsement or a floater. This add-on, which is often referred to as a rider, will increase the cost of your household insurance. Therefore, consider the limits on coverage when choosing household insurance and then determine if it is a better financial decision to add a rider or to go without.
Choosing Household Insurance: Decide Rebuilding Costs
Since household insurance is in place to rebuild your home if something should happen to it, you must consider the amount it will cost to rebuild your home rather than how much it is currently worth when choosing household insurance. For the most part, the cost to rebuild will be much more than it cost you to purchase the home in the first place. Therefore, the best financial decision is generally to insure the home for 100% of what it will cost to rebuild.
Your insurance agent should be able to help you determine the rebuilding cost. If not, consider hiring an appraiser. A variety of factors will go into determining the rebuilding cost, including: the square footage, the type of exterior wall construction, the style of the home, the number of rooms and bedrooms, the material used for the roof, and extras such as arched windows, an attached garage, and a fireplace. Similarly, be sure to report any additions you make to your home after your initial purchase of household insurance. Otherwise, you risk being under-insured for the improvements you have made if your home is completely damaged.
If your insurance company is unwilling to insure your home for 100% of its replacement cost because it is an older home or is in poor condition, it is usually still a wise financial decision to insure it for as much as possible. If the cost of the policy is a concern, make sure to insure your home for the amount it would cost to rebuild a home that is large enough to suit your needs.
Choosing Household Insurance: Comparison Shopping
The cost of household insurance can vary by hundreds of dollars from one insurance company to the next. When choosing household insurance, be sure to take the time to shop around. Make a list of potential insurance companies, and then check on policy prices at each one. You also want to consider the extent of the coverage and the quality of the customer service provided. It may cost a little extra to go with a company that provides excellent customer service, but the extra expense may be worth it.
Choosing household insurance may seem like a daunting task, but it is one of the most important long-term financial decisions you can make. Take the time to do it right and make sure you are covered as much as possible.
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