As a homeowner, it is important to understand and obtain homeowners insurance. It’s not hard to get a homeowners insurance policy. Most people get one when you close escrow on a new home. The first item you will probably see in your policy is a line item called dwelling coverage or building coverage. This is the part of your policy that covers the cost to rebuild your property for disasters like fire, wind damage, and even vandalism. The coverage is based on the cost estimate to rebuild the structure (not the land value). Unfortunately, normal policies do not cover earthquakes or floods, but separate policies are available if you are in earthquake or flood-prone regions. Other items are also not covered like wear-and-tear, so talk to your agent about what is and what isn’t covered in the policy you choose.
While your agent can help you estimate how much is best, you ultimately select the amount of coverage you want. You don’t really want to under-insure or over-insure (Don’t just throw away money!). Take the time to review your policy annually and increase your coverage if local building costs increase.
Deductible is a common insurance term and the amount is your choice. It is how much you pay out of pocket for a loss. If you have a $1,000 deductible, and there is a $8,500 loss, you pay the first $1,000 and the insurance carrier pays the other $7,500 up to your maximum covered loss. The higher the deductible, the lower the annual insurance premium; the lower the deductible you have, the higher the annual insurance premium you pay.
Bottom line: Choose an agent who will make sure you understand the ins and outs of insurance – it matters! You want to make sure you are protected and not under- or over-paying.