Homeowners insurance can sometimes be overwhelming, but when you are buying a new home, take advantage of the time and ask questions to better understand your coverage. Below are just a few tips on understanding your insurance.
Coverage Exclusions: Be sure to ask and watch for any exclusions in your homeowners insurance coverage. Most policies will not cover earthquakes or floods. In Minnesota, earthquakes are not something we often think about, and until lately, floods weren’t that commonly thought about either. Flood insurance is usually available as an add on, but the point is to make sure you know what if any exclusions are in your policy.
Claim Limitations: Many policies are covered for a risk such as a home burglary, but watch for limits on those risks. Most times, there are limits on personal property such as electronics, art and jewelry. If you have items of great value, look into a separate policy for those items.
Replacement Cost: If something were to destroy your home, and you need to rebuild or ‘replace’ it, you need to know how much it will cost to do so. Make sure your insurace is sufficient enough to cover all of those replacement costs. If your home is insured for $200,000 and was destroyed by a tornado, you will only receive $200,000. If you meet with a home builder and they say it will cost $235,000 to rebuild the exact some structure, you are underinsured.
Cash Value: Let’s say your home was destroyed. Let’s say you decided not to rebuild, but to take your insurance settlement and move to the other side of town. Your settlement will be your replacement cost MINUS depreciation. That is the actual cash value. Replacement Cost – Depreciation = Actual Cash Value. Make sure your actual cash value is enough to cover your mortgage balance, moving costs, etc.
Liability: The more you have, the more liability you have. Most policies will cover you if the pizza delivery man slips on the icey sidewalk, or your babysitter breaks a leg trying to keep the kids out of the trees 
. Expenses like medical care, court costs and other settlements decided on my the courts are usually covered to a certain point. Policies will have a maximum coverage amount for liability. Make sure your liability coverage covers your assets!
