How To Understand Your Homeowner's Insurance Policy
When purchasing a homeowner's insurance policy, you may end up wondering exactly what it is you're paying for. It's a good idea to learn some of the industry's terminology in order to get a handle on your situation. Let's check out four concepts that are important to understanding your policy and why it might be priced the way it is.
Hazard Insurance
This is what most folks think of as the core of their policy. It helps you guard against the possibility that a random hazard, such as a tree limb falling through the roof of the structure, might damage your house. Such policies are also typically written to cover the cost of replacing a property owner's damaged items.
In many cases, folks who have loans or credit lines against their residences have to carry hazard insurance. Your policy will be tailored to ensure that the remaining balance of the loan is paid if the house ends up being a total loss before it is paid off.
Liability Insurance
Coverage against things happening to third parties on your property is also important. For example, a passerby might trip because of a crack or a heave in the sidewalk. In such cases, liability insurance would cover you if you were found responsible for the incident.
Assessing the House
One of the biggest concerns an insurance carrier has when pricing a policy is how much risk the carrier might be on the hook for. The two big factors are how much it would cost to replace the house and how likely it is an incident might occur. A property that has an older electrical system, for example, is going to be seen as a bigger insurance risk than one that has modern wiring and grounding. If you do remodel your home to address such risks, it's a good idea to get a new policy drawn up to account for those improvements.
Agent Independence
The independence of an agent selling a homeowner's insurance plan can be a factor in pricing. If you're very happy with a particular carrier, there's nothing wrong with getting a policy from an affiliated agent. Folks who are looking to shop around, though, may benefit from being able to compare rates from several companies. If you're not sure whether or not an agent is independent or affiliated, just directly ask them. They'll be happy to tell you what their situation is.
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