Understanding Your Homeowners’ Insurance: Part 1

Don’t wait until after an earthquake to find out if you’re covered or not!

By law, all homeowners or anyone who has a mortgage on a home need homeowners’ insurance. Proper homeowners’ insurance can provide necessary protection for your home, reimbursing you for any damages to your home or personal possessions.  But, most people don’t even look at their insurance policy after the initial purchase, and have no idea what their policy coverage entails until a freak accident happens, leaving them wondering if their insurance policy will cover  them.  Big mistake!  It is imperative that all homeowners understand their policy and know exactly what is covered and what is not, and to periodically review their policy to assess any changes that they might need to address.  BMR Insurance will help you cover the basics of homeowners’ insurance so that you will better understand your policy.

Know what your insurance policy covers: Typical homeowners’ insurance coverage includes damages caused by fire, water, storm (wind, lightning, etc), theft or vandalism.  Most people mistakenly assume that homeowners’ insurance will cover damages caused by earthquakes and flooding.  However, these two perils are not covered under a general homeowners’ insurance policy. If you live in an area prone to these types of natural disasters, consult your insurance provider to see if you will need to opt for an additional policy.  For example, in an area at risk for flooding, homeowners would have to purchase flood insurance through the National Flood Insurance Program.  Review your insurance policy with your agent and make sure you understand what your policy does and does not cover.

Know The Difference Between Replacement Cost vs. Actual Cash Value : Two different types of homeowners’ insurance coverage are Replacement Cost and Actual Cash Value.  Under Replacement Cost coverage, your insurance company will cover the entire cost of whatever is damaged.  For Actual Cash Value coverage, your insurance company will cover the cost of the damaged item, minus the cost of depreciation. For example, under Actual Cash Value coverage, if a burglar were to steal your three-year-old stereo set valued at $500, then your insurance company will only reimburse you the adjusted cost, including wear-and-tear accountability of the last three years.  However, under Replacement Cost, your insurance company will cover the full $500. Most insurance policies provide Actual Cash Value coverage, unless explicitly stated.

Review your insurance policy annually: It is important to periodically review your policy with your insurance provider to ensure that your policy will sufficiently cover you in the event of an accident.  The value of your home, which directly correlates to your insurance policy coverage, is not static! Over time, increases in the value of your home can affect your insurance policy, and if you do not reassess these changes, your policy might not be able to fully cover you.  Factors such as remodeling or even acquiring new furniture affect the value of your home, so make sure to reassess your property value often and review your insurance policy annually.

Thoroughly review your insurance policy and understand what it includes and covers.  If you have questions, make sure you ask your insurance agent, or you can call BMR Insurance today at (714) 838-1911 or email us for a free insurance consultation. Don’t forget–you can like us on Facebook! Click here to go straight to our page.

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6 Responses to Understanding Your Homeowners’ Insurance: Part 1

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