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4 Questions to Ask When Buying Home Insurance

Because you have home insurance doesn't mean you are insured against all losses. Home insurance is complicated, and you can easily get confused about coverage when buying a policy. Although you have numerous factors to consider, you should know some essential things in relation to home insurance beforehand.

1. Should I Insure for Replacement Cost or Market Value?

If you insure your home for its current market value, you could be buying more insurance than you need. This is just one reason to insure your home for what it would actually cost to rebuild or replace it. Coverage based on replacement cost rather than your home's value may save you on premium costs, especially if you live in an active real-estate market where the prices of homes are rising quickly.

The same goes if you live in a housing market where home values are dropping. Even the real estate market is depressed, your home could cost more to rebuild than what you would get if you try to sell the home later on. Regardless of potentially low housing prices in the future, right now you need to have the home insured for enough to repair or rebuild it after a fire or other peril covered by your policy.

That's why you shouldn't seek a lower premium by lowering your insurance coverage. To be adequately insured, base the amount of coverage you buy on what it would cost to replace the home, not on how much you paid for it or the current market value.

Keep in mind when calculating replacement cost that local material and labor costs vary by area and can change over time. Guaranteed replacement coverage is best since it pays out 100 percent of the cost to repair or rebuild your home.

2. Do Older Homes Cost Less to Insure?

Just because you live in an older home doesn't mean that home costs less to insure. An older home can actually cost more to repair or replace than a more modern structure. Many of the features that an older home offers and the materials used to build them are more expensive to replace than those used in the construction of homes built in recent decades. These increased costs lead to higher premiums.

Besides having features like wooden floors and crown moldings, an older home can be more expensive to insure if it has outdated electrical and plumbing systems that need upgrades. Shaky foundations, asbestos siding, lead paint, or mold damage often found in older homes can lead to higher insurance premiums as well. 

3. Do Higher Premiums Mean Your Home Is Fully Covered?

The purchase of a large amount of coverage doesn't necessarily mean you have full coverage. Although many different types of homeowners insurance policies exist, most include limitations and exclusions. For example, even under the best policies, not all natural disasters are covered perils.

If you live in a flood- or earthquake-prone area, you must purchase coverage as a separate policy or as an endorsement to your standard home insurance policy. Similarly, coverage for other losses, such as sewer backup, is provided as an endorsement or add-on.

4. Do Medical Payments Cover Bodily Injury?

If you or other household members get hurt in the home, your medical expenses aren't covered by home insurance. You must submit a claim to your health insurance for payment of your medical costs.

The medical payment and liability portions of your home insurance policy are designed to cover only visitors who get injured on your property. This portion of your policy reimburses the injured party for medical expenses up to the coverage limit you purchased.

For answers to these and other questions you have relating to home insurance, contact Sachs Walsh Insurance for more information.

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