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Homeowners Insurance 101
Posted By Ron On January 27, 2010 @ 4:45 AM In Insurance,Life 101,Personal Finance | Comments Disabled
 Anyone who owns or rents a home should have homeowner’s insurance (called renter’s insurance or tenant’s insurance when applied to rentals). This insurance covers the physical structure of the home and the possessions in it. With rentals, it applies only to the possessions.
There are six main coverage options included in homeowners insurance. Only some of these types apply to renters, but all apply to homeowners.
When buying coverage, you’ll have to choose the coverage level you want for each of these six options. There is where the potential for large variations in your policy premiums will lie.
 Residence coverage covers the cost of repairing or replacing your house, or parts of it, if the physical structure is damaged or destroyed by a “cause-of-loss,” such as a fire, hailstorm, tornado, or hurricane. Buy coverage equal to 100% of the current estimated replacement cost of your home (not the original price you paid for the home).
There are several ways to determine your home’s replacement cost.
There are three main levels of cause-of-loss coverage (though the exact causes-of-loss that each type covers vary based on your policy and insurer):
Damages that result from floods and earthquakes are typically NOT covered by homeowner’s insurance. If you live in an area prone to floods or earthquakes, you’ll need to buy separate policies that cover those specific natural disasters. I live in an earthquake zone and I have earthquake insurance!
Residence coverage for the typical homeowners insurance  policy includes a fixed amount of coverage for detached structures, such as barns, garages, and pools, which is usually equal to 10% of the residence coverage. If the replacement value of your detached structures is greater than 10% of your residence coverage, you should purchase additional detached structure insurance.
Personal property coverage covers all the items you own and store within your home. Personal property insurance works differently for renters and homeowners.
If you need renters insurance , you can purchase two types of personal property coverage: actual cash value or replacement cost.
In my experience, renters usually choose the actual cash value option and buy an amount of coverage approximately equal to the total value of their possessions in their current state. Actual cash value policies are, you guessed it, much cheaper.
Residence coverage typically includes an amount of personal property coverage equal to 50–75% of the current estimated replacement cost of the home. Certain high-value items (such as fine art, furs, jewelry, and camera equipment) usually are not included in personal property insurance or are capped at $2,500. Most insurers will allow you to buy additional personal property coverage that applies specifically to items you stipulate and whose value you declare. This type of coverage is usually called scheduled personal property coverage.
There are several ways to determine the value of your personal property.
Living costs coverage covers housing costs you incur if your primary residence is destroyed and you must live somewhere else temporarily—even if you don’t own the residence. Most homeowner’s insurance policies include living costs coverage equal to a percentage of the residence coverage amount. Other policies require the insured person to buy a fixed amount.
Personal liability coverage covers costs that result from lawsuits in which you are a defendant. These costs can include judgments you must pay for the plaintiff’s medical bills, lost wages, and pain and suffering, or expenses you incur as a result of the lawsuit, such as legal fees. Personal liability extends to incidents that happen anywhere except within your vehicle.
Buy as much personal liability coverage as you can afford. The amount of coverage you buy should match the amount of liability coverage you buy under your auto insurance policy.
Some insurers will allow you to add an umbrella insurance rider  that will increase your liability protection up in to the millions of dollars.
Medical payments coverage applies to medical bills only — not lawsuit-related expenses — incurred by visitors who sustain injuries in your home, regardless of fault. Coverage usually applies to a set maximum amount, such as $10,000. Most homeowners don’t buy medical payments coverage, assuming that house guests who injure themselves on the homeowners’ property either won’t ask them to pay for their medical bills or will be covered by their own health insurance  policies.
If you have, or expect to have, frequent house guests whom you don’t know personally (such as service people, maids, home health nurses, gardeners, etc) or whom you suspect don’t have health insurance , consider buying an amount of coverage equal to the liability coverage you buy under your auto insurance policy. You should also insist that any service people entering your home have their own worker’s compensation coverage and be bonded.
The amount of your homeowners insurance  premiums depends on many factors, such as your coverage amount, your location, and the type of home in which your live. The average annual premium for homeowner’s insurance is about $696 but premiums vary considerably. Idaho has the lowest average premium at $369 and Louisiana the highest at $1,389. Payments may be annual, semiannual, or monthly, depending on your insurance company.
Insurance companies calculate homeowner’s insurance premiums based on your risk factor, the likelihood that you’ll file a claim under your homeowner’s insurance policy. There are a few ways to reduce your risk factor and, in turn, reduce the amount of your premiums:
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