When you purchase a home, one of the additional costs you will have is homeowners insurance. It is important to have adequate insurance coverage so in the event of damages, you will be able to replace your home to the condition it was before the damages.
If you are getting a mortgage to purchase your home, your lender will likely require a completed appraisal report to ensure the home is worth equal to or more than the amount of the mortgage; this protects the lender if you default on the loan. In most cases, the appraisal report will contain a replacement value of your home. The replacement is how much it would cost to repair or replace the entire home in the event of a fire or disaster.
Another option to determining the replacement cost of your home is to have a builder or contractor walk through your home and give you an estimate of how much it would cost to replace or repair your home.
The purchase price or construction cost can give you an idea of how much coverage, but you should also get an opinion of what the replacement cost would be from an appraiser or builder. The replacement value is not necessarily the same as the market value. The market value is the amount a buyer would be willing to pay for a home; this includes the value of the land on which the home is located. The replacement value of the home includes the amount it would cost to replace the home and does not include the value of the land.
Your insurance agent can also help you to determine how much coverage to have on your home. They can determine the amount of coverage you have by either inspecting your home or looking at the appraisal that was completed on your home.
Review your homeowners insurance coverage regularly to make sure the coverage is still adequate. You may need additional coverage if you have remodeled or improved your home. Determine if the rate of inflation risen since you had your home appraised.
Most homeowners insurance policies do not cover damage caused by flooding, earthquakes and sewer backup. You will need to purchase separate policies for these events. If your home is located in an area that is prone to these events, you may be required to have flood or earthquake insurance.
Your homeowners insurance coverage will also include liability coverage in the event someone gets injured on your property. It will cover medical expenses if someone falls on your property or if they get bitten by a dog or other pet.
Your homeowners policy may have a standard amount to cover loss of your possessions. It is important to take an inventory of your possessions so that you know how much to insure them for, and so you have a record in the event of a loss. You can add additional coverage to your policy to cover more expensive items such as jewelry, antiques and other collections.
It is important to calculate the value your home correctly so you are adequately insured in the case of a loss or damage.