Buying a home can be such an overwhelming process that it’s easy to overlook homeowners insurance. Should something happen to your home, however, homeowners insurance can make or break you. Before signing on the dotted line, make sure you understand your level of coverage and the details of your policy. Below are some homeowners insurance terms to familiarize yourself with:
Premium – The price you pay for insurance, typically annually or monthly.
Deductible – The amount of money you must pay out of pocket before your insurance kicks in; the higher the deductible, the lower your premium.
Liability Coverage – Insurance coverage that will pay medical or legal bills if someone is hurt on your property, usually due to negligence.
Personal Property – Tangible property (other than land) such as furniture, electronics and clothing.
Replacement Cost Value (RCV) – The full cost of replacing your personal property, up to a maximum dollar amount.
Actual Cash Value (ACV) – The current cash value (with depreciation) for personal property. Some courts have interpreted the term to mean “fair market value.”
Sub-Limits – Extra limitations in the amount of coverage available to cover a specific type of loss. For instance, a homeowners policy may specify that of its $500,000 coverage, only $100,000 can go toward losses from floods. This means the insured cannot receive more than the sub-limit amounts for the types of loss stated.
Riders – An add-on provision to your policy to cover specific items (such as jewelry, art, or family heirlooms) because they’re too valuable to be covered as regular personal property.
Force Placed Insurance – If you have a mortgage, you must keep your home insured. If you can’t or won’t get homeowners insurance, your lender will “force place” a policy, meaning it will buy an insurance policy for you and then bill you for the insurance. Force placed insurance is typically more expensive and provides less coverage than a regular homeowners insurance policy.
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