A home is one of the largest purchases that most people will make during their lifetime. A good home insurance policy is needed to protect your investment and remain in compliance with your mortgage lender's requirements.
Shopping for home insurance can be a big task. The more you know about this type of insurance coverage, the better equipped you will be to compare policies and select the coverage that best meets your needs.
1. Open Perils vs. Named Perils
One of the terms that you will encounter when reading through home insurance policies is perils. Perils are essentially events that an insurance company feels may threaten the safety and integrity of your home.
A home insurance policy can rely on either open perils or named perils when providing coverage.
An open perils policy provides maximum protection for homeowners. Unless an event is specifically excluded, an open perils policy will cover damages caused by pretty much any hazard.
A named perils policy is more restrictive. Coverage will only be offered for damage caused by the events listed in the policy itself.
Understanding the differences between the two types of perils will help you evaluate which home insurance policy is right for your property.
2. Natural Disaster Coverage
Homeowners often make the mistake of thinking their insurance policy will protect against financial losses caused by natural disasters. In most cases, this is not true. Earthquake and flood coverages are typically not included in a traditional home insurance policy.
If you live in an area where earthquakes and floods are a real threat, you will need to secure add-on coverage from a specialized insurance agency to cover these natural events.
3. Loss of Use Coverage
Your home insurance policy should provide you with something known as loss of use coverage. This coverage offers financial compensation in the event that you are displaced from your home.
You may need to stay in a hotel while your roof is being repaired after a storm or your kitchen is being refinished after a fire. Loss of use coverage will provide you with money that can pay for your temporary living costs while your home undergoes repairs.
You don't want to discover that you have inadequate home insurance coverage after a disaster strikes. Take the time to fully understand the terms of each policy before you make a decision that will impact the financial future of your home.