Buying a home is a big investment and should be well protected. Homeowners insurance is the key to protecting that investment, but it will be beneficial for you to understand just what the general term “homeowners insurance” means. For example, no single insurance coverage will protect all aspects of the home, so you will need to know which coverage’s are essential and what they are designed to protect.
There are different types of insurance designed to cover specific risks. To properly protect your investment, having each type will be important, and may even be required by your mortgage lender. According to Realtor.com, the essential types of home insurance are:
An article published by Bankrate.com explains that insurance coverage comes in two basic flavors: Replacement Cost and Actual Cash Value. Replacement Cost insurance will pay to completely repair or replace damages regardless of the current market value. Actual Cash Value will only pay the depreciated value of damage or replacement. ACV protection may result in the homeowner paying a large portion of the costs out of pocket. On the other hand, the premiums for ACV are generally much lower than Replacement Cost coverage.
The good news is that most mortgages allow you to combine your homeowner’s insurance payments with your monthly mortgage, so that the protection is being paid at the same time. Not only is this convenient for the home owner, it may be a requirement of some lenders, because it gives lenders the security of knowing the property value is being protected for the duration of the loan.
U.S. News reports that understanding the terminology is important for home owners. Having a working knowledge of terms such as deductibles, riders and exclusions gives you the power to make more informed decisions about your specific insurance needs. It only takes a few minutes to brush up on commonly used terms, but knowing them will benefit you in every insurance policy you will ever purchase.
A professional real estate agent will help you throughout the home buying process, including choosing the right homeowners insurance protection. Contact RE/MAX DFW Associates to help you make the right home buying decisions.
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