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Make the Best Choices When it Comes to Home Insurance

If you're ready to take out a mortgage to buy your first home, one thing you'll need to consider is home insurance. Almost all lenders require homebuyers to take out insurance on their home. The insurance covers damages or losses due to incidents such as storms, fire or theft. Home insurance usually includes liability coverage in case of injury or property damage to other people while at your residence, too.

New homebuyers often look at insuring their home as one more task they must complete and one more expense they have to pay along the path to home ownership. In actuality, insurance is a very important purchase, as it's the only thing that will protect the largest financial investment you're likely to make. By taking the time to shop around, homebuyers can choose the best insurance for their new home and their budget.

What's Covered by Insurance?

There are several things to consider when purchasing insurance for the home. First, it's important to understand what's covered and what's not. You'll want to evaluate what type of coverage a policy makes available for your home as well as other buildings or structures on your property such as pools or tennis courts. It's also important to evaluate coverage on items in your home that could be damaged or lost due to theft.

A second type of home insurance coverage to evaluate is liability insurance. This type of coverage involves damage to other people that may be caused by you or your pets at your home. Liability coverage usually pays for medical expenses, legal costs in the event of a lawsuit, and also covers property damage.

Finally, home insurance may cover the costs of living expenses in the event you need to vacate your house due to damage caused by a covered incident. You may be reimbursed for example if you need to temporarily move into a hotel or apartment while your home is repaired after a fire.

Most policies cover damage, losses or expenses due to fire, including smoke damage. Damages that occur due to frozen pipes are also usually covered, as are losses that occur due to lightning, ice or snow. Theft coverage is also usually included in home insurance policies.

What Events are Excluded from Coverage?

Once you determine what's covered by an insurance policy, you'll need to understand what incidents or events exclude coverage. Some natural disasters are typically excluded from coverage, such as floods and earthquakes. Acts of war, nuclear accidents and acts of terrorism are other incidents that typically aren't included in insurance coverage. It may be possible to purchase special insurance to cover the incidents or events that normally exclude coverage.

Choose the Right Level of Coverage

Although your mortgage lender may require you to purchase a minimum amount of home insurance, consider whether or not this amount is truly adequate. An insurance agent can help you determine what amount of coverage is most appropriate for your home. Usually, this is established by determining how much it would cost to rebuild your home. It's also important to evaluate liability coverage to determine whether it's really enough to protect your assets.

Once you've determined what type and amount of home insurance you need, it's important to understand what will happen in the event of personal property damage. Replacement cost coverage pays today's value of lost or damaged property. Actual cash value deducts depreciation from replacement value. Consider what type of coverage you'd prefer and are willing to invest in when it comes to personal property.

Finally, you'll need to choose a deductible that you'll have to pay out of pocket in the event of damage or losses before your insurance coverage takes effect. Choosing a higher deductible is one way to lower your home insurance premium.

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