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Understanding Homeowners Insurance

Do you understand the need for homeowners insurance? Many time homeowners never really understand what they are buying into. Mosaic Insurance would like to share some information about homeowners insurance in Prescott and how it affects your investment.

 

Your mortgage company requires you to have a comprehensive homeowners policy. It protects the home in case of a disaster and will repair or rebuild it if needed. It also protects your future if an unforeseen event were to strike!

 

There are some lesser-known items it covers in the event of a substantial repair such as alternative lodging, meals, and additional living expenses. This can save you a lot of undue stress during a catastrophic event. Additionally, homeowners policies also cover you if someone gets injured on your property.

 

Before signing up for a homeowner’s policy, you should decide:

 

What type of homeowners policy do I need?

 

There’s no law that says you have to purchase any amount of home insurance. So once your mortgage is paid off you can drop coverage if you like, but I generally don’t recommend it.

 

Home insurance is pretty standard across the U.S. However, some states or insurers may offer policies that are slightly different.

 

The most popular homeowner's policy is called HO-3 and it gives you protection from theft, fire, tornadoes, and other perils. An HO-3 policy also insures personal belongings from perils it covers. You may consider an HO-5 policy if you have many expensive things to be covered.

 

What is actually covered?

 

While a standard homeowners insurance policy gives you many protections, such as coverage for the structure of your home, your personal belongings, loss of use, and liability, it doesn’t cover everything.

 

Policies often state that for something to be covered, it must be “sudden and accidental.” That means if you’ve had a leaky faucet that caused damage over many months, it probably won’t be covered because you neglected proper maintenance.

 

However, even if they are sudden, certain natural disasters are never covered in a standard home policy, such as floods from groundwater and earthquakes.

 

If you have a home-based business—with customers who come into your home, special equipment, or inventory—it typically isn’t covered and requires a separate commercial insurance policy. You’ll also need a different type of policy if you turn your home into a rental or vacation property.

 

What is the deductible?

 

Cash value coverage - pays to repair or replace your property or possessions up to the policy limits, less a deduction for depreciation. It’s sometimes called market value coverage. This is the least expensive option, however, it means you probably won’t get a payout that’s enough to rebuild your home or replace personal items after a serious disaster.

 

Replacement cost coverage - pays to repair or replace your property or possessions up to the policy limits, without a deduction for depreciation. This costs more than cash value coverage but means you could fully replace what you lost. When you have an HO-5 policy, this is the typical coverage amount.

 

Guaranteed or extended replacement cost coverage - gives you the highest protection because it pays the cost to replace your home as it was before a disaster, even if it’s higher than the policy limit. Some companies extend the benefit to a certain percentage over the limit, such as 25%.

 

When setting your homeowner's coverage limits, remember that the price you pay for a home includes the land, which is never insurable. You only need insurance to rebuild or repair damage to your home’s structure and outbuildings. If you include the value of land in your home insurance, you’ll end up paying an unnecessarily high premium.

 

What discounts do you qualify for?

 

Premiums based on your potential future risk. When you make home improvements or add technology that makes your home safer—like smoke detectors, alarm systems, deadbolts, and upgraded doors, windows, or roofing—you may qualify for discounts, so let your insurer know.

 

Another smart way to save is to bundle your home policy with other coverage, such as auto or life insurance, at the same company. Also consider increasing your out-of-pocket deductible (if you have enough emergency savings to cover it), because that reduces your premium.

 

No one enjoys paying for insurance, but when disaster strikes, having a homeowners policy in Prescott can be a financial lifesaver. To review your current insurance plan and see if we can save you on your premiums, contact Mosaic Insurance today. Call 928-458-7374

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