Homeowners insurance is a necessity not only for anyone carrying a mortgage on their family homes but for anyone wanting to ensure it can be repaired or replaced if damaged or destroyed by a covered peril. A good home insurance plan offers a mix of property coverage and liability protection in case someone is injured or killed or their property is damaged or destroyed while on the insured parcel.
Typical homeowners plans protect owners against common perils, such as fire, internal flooding and damage from falling objects. And they all provide protection for detached structures, such as garages, sheds and other out buildings. A standard plan for insuring a home is considered a multiple-lines policy due to the fact it provides liability coverage as well as property protection. A single premium pays for both levels of insurance and can be very affordable compared to the possible cost of having a home destroyed or facing an expensive lawsuit filed against homeowners to cover medical costs or damages to another's property.
A dwelling policy is similar to a multi-line home insurance policy, except a dwelling policy applies to structures, such as a second home or a cabin, that are not occupied year-round. A homeowners plan applies to a fully occupied home and comes with broad-risk coverage with some exceptions. Not included in such policies is protection against external flooding, such as might occur when a river swells and causes widespread damage to nearby homes, wind and hail damage, volcanic eruptions, landslides, earthquakes and similar perils.
Fortunately, such destructive elements can be insured against with additional riders that will increase the cost of insuring homes but can be extremely beneficial. But two things that cannot be insured against involve intentional acts of mankind. If a home is damaged or destroyed by an act of war or is damaged or destroyed by an act committed by a local, state or federal government, no insurance coverage would be provided. An example of a government action destroying a home is when eminent domain is declared for the purpose of building a new highway and the home must be removed to make way for progress.
When choosing a standard homeowner plan, owners can choose between actual cash value policies and replacement cost plans. Actual cash value means the amount a home is worth at the time a claim is filed and takes into account depreciation and other factors that can reduce the value of a property. Such coverages are more affordable than replacement-cost varieties, but they can leave the homeowner spending money out-of-pocket if the cost of repairing or replacing the home is more than its actual value.
Replacement cost means the home will be repaired or replaced if afflicted by a named peril, but such coverages do cost more. Those who can afford them are well-advised to choose replacement cost protection instead of actual cash value, which is best reserved for lower priced homes that cannot depreciate a great deal over time.
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