Living Securely: Home Insurance Policies

What is Home Insurance?

Home insurance insures your dwelling, whether it be apartment, condominium, or an actual house. If you are in the process of buying a house, home insurance is probably one of the conditions of your mortgage, but if you are renting, you may not have considered the benefits of owning a home insurance policy. Many home insurance policies also cover the contents of your dwelling; if you live in a furnished apartment, consider budgeting for home insurance.

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Different Levels of Home Insurance

There are different types of home insurance ranging from Actual Cash Value to Guaranteed or Extended Replacement Cost.

-Actual Cash Value: if you are the holder of this policy, you would get the actual cash value of your home or belongings upon making a claim. There is one catch - The insurance company will calculate depreciation on your goods if you own this policy. This depreciation extends even to goods that do not actually depreciate in value. For instance, an expensive ring covered by an actual cash value insurance policy is initially appraised at $7,000. The ring is stolen.

After making the claim, you are awarded $5,000. What is the reason? The insurance company calculated depreciation on the ring. Even though the ring has actually gone up in value, you will collect less on it because of the actual cash value policy.

-Replacement Cost: owning this policy insures that you when you make a claim, you will collect the full value of your losses. The home insurance company will pay the cost of rebuilding, repairing, or replacing without any deductions for possible depreciation.

-Guaranteed or Extended Replacement Cost: This level of coverage is the “Cadillac” of home insurance. It insures that no matter how serious your loss, the insurance company will fully compensate you, even if the cost will exceed the policy limit.