November 23, 2022
  • November 23, 2022

The importance of property insurance

By on March 25, 2017 0


What is property insurance?

The basic goal behind purchasing any insurance is to make yourself financially complete after a loss. You agree to pay a small certain charges to an insurance company today in exchange for a guarantee from the company that it will bear the burden of a large but uncertain loss in the future. Following this reasoning, property insurance protects you against damage or loss of expensive personal property, such as a home or a car. Forms of property insurance include auto insurance, home insurance, tenant insurance, and flood insurance.

Let’s say you have a free and unobstructed house and you have a tidy nest egg. As long as you continue to pay your property taxes, you have the right to enjoy this home for as long as you want, as guaranteed by law. You can live there, rent it, leave it vacant or sell it. You sit well and you may be wondering, “Why do I need home insurance?” ”

Then all of a sudden this giant tree in the garden falls on your house and causes serious damage. Now you have to cover the full cost of repairing the house, and that nest egg is seriously reduced. If you had home insurance it would have paid – in part or in full – to have your home repaired or replaced, saving you a lot of unexpected change.

Key points to remember

  • It is advisable to purchase home insurance from anyone who owns an expensive asset, such as a house or a car.
  • It is often taken out in addition to civil liability insurance.
  • Property insurance does not cover all property equally; for some things, like jewelry, you may need an extra floating blanket.

Who needs home insurance?

Well, pretty much anyone who owns expensive property. In fact, in many cases you are obliged either by law or by a mortgage contract to take out home insurance. The 50 US states, for example, require drivers to purchase auto insurance, usually in the form of liability insurance.

Liability insurance covers compensation and financial restitution to someone other than the person responsible for an accident. For example, offender’s liability insurance pays for car repairs and medical bills for the other driver and passengers. Fortunately, when you purchase the required third party liability coverage, you also have the option of purchasing home insurance (in the form of comprehensive insurance and collision insurance when it comes to auto insurance), thus saving you financial hardship if your own car is damaged in the accident.

Blanket

According to a survey published in the Journal of Financial Planning, many homeowners have a very mistaken view of what their home insurance really covers. According to New York Times report on a 2007 investigation conducted by the National Association of Insurance Commissioners, 33% of homeowners believed flood damage would be covered, 51% believed damage from a water main rupture would be covered, and 34% believed damage caused by mold were covered.

In reality, the risks (causes of destruction of property) which are generally not covered are:

  • Flood damage (this is a separate policy)
  • Earthquake (this is also a separate policy)
  • Mold
  • Maintenance damage (e.g. worn plumbing, electrical wiring, air conditioners, heaters, roofing, etc., as well as mold and pest infestation)
  • Sewer backup

Policies are often written in such a way that for an item to be covered it has to be “sudden and accidental” which means that it is not a slow leak that has caused damage over several months. . Often times, this is not covered by insurance. If your roof collapses from old age and not storm damage, it probably won’t be covered.

Risks that are generally covered include:

  • Fire or lightning
  • Windstorm or hail
  • Explosion
  • Smoke
  • Flight
  • Vandalism or malicious mischief
  • Riot or civil unrest
  • Damage caused by aircraft or vehicles
  • Volcanic eruption

Liability coverage

In addition to covering the value of your home or other property, many insurance policies also include an important provision for liability coverage. You might think it’s not very important. However, there are dozens of avid lawyers in every city looking to prosecute people like you. Liability insurance is well known to car owners, but perhaps less known to home owners.

If your neighbor’s house catches fire because you left your charcoal barbecue unattended, you will pay for the damage caused by the fire. You have paid your premiums to the insurance company to pay larger claims when they arise. The same goes for someone who is injured and needs medical attention while on your property.

If you are on vacation and your property is stolen, such as a diamond ring, you may be eligible for a refund. Make sure you document the theft with proof that you own it, and you should be able to provide a police report to the insurance company.

You need to know what your policy does and, more importantly, what it doesn’t cover. Insurance companies don’t stay in business by charging a minimum amount to cover anything that might happen to your property.

Additional coverage (no)

Home-based businesses are generally not covered. This does not include a home study but rather a place where people come into your home as customers, such as a workshop where you repair furniture. You will need a separate commercial (commercial) policy to properly insure this area and its liability.Again, these rules vary from state to state and country to country.

Also, if your property, especially your home, is left vacant for more than a certain period, typically 30 days, the home insurance policy can be canceled immediately by the insurance company.It is assumed that a vacant home presents a much higher risk of risks, such as fire or theft, and therefore changes the risk profile sufficiently to require a separate policy. If you have a second home or vacation property, you can also purchase another policy to cover that home.

Be aware of how your policy covers repairs. Covering the full replacement cost is better than just actual cash value (ACV), but it will cost you more in premiums.

Traps to avoid

Check to see if your policy covers repairs at actual cash value (ACV) or replacement cost. The latter is generally much better. Case in point: if your roof has been damaged and needs to be completely replaced, the replacement cost will pay for it to be fully repaired minus your deductible, while ACV will pay you what your roof was estimated at actual value at the time. of the damage. The trade-off is that ACV costs less than replacement cost coverage.

Art and Jewelry

Also, if you have expensive jewelry or artwork that you want to cover, you may need to add a float. This is an addition to your main policy. Many policies have standard amounts that they will pay for losses of particular items, and they will not pay more.

Co-insurance clauses

Finally, some owners only wish to insure a property for what they have paid, which can involve a coinsurance clause. This is (depending on local laws) where the property is insured for less than, say, 80% of its current replacement cost. Have less coverage and the insurance company will ask you to share a percentage of the repairs over and above the deductible amount.

Premium factors

Do you live in an area prone to tornadoes, hurricanes or flooding? Do you own a large dog or a swimming pool? Are you a smoker? How is your credit rating?

You may be at a higher risk than normal based on your answers to these questions, and an insurance company will charge you accordingly. These are factors that he takes into account when setting your insurance rates. The more these and other risks apply to you, the higher your rates will be.

A word of warning

Some insurance companies offer seemingly incredible rates for their policies. If the company is unknown and their rates are exceptionally good, that should be a red flag. Check the reputation of the business and don’t just take the seller’s word for it. Take a look at the policy and see what it covers and what it does not.

You may find too late that what you thought was adequate coverage was barely the legal minimum in your area. When looking for the benefits of property insurance, insist on quality coverage. Remember that cheap insurance can be very expensive.