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How much home insurance coverage should I buy?

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Homeowners insurance can be confusing, mostly because your home insurance covers more than just the house you live in. Your homeowner's coverage also protects your personal property, even when it is not on the lot where the home is, and provides liability protection to handle the damages or injuries other people suffer while on your property. Just having a home insurance policy for the value of the home is not enough, and may not even replace your home in many cases.

For the home portion of the policy, you could have one of two types: actual cash value or replacement value. Actual cash value coverage is the least expensive of the two, but it will only pay the depreciated cost of replacement or damages, and that could be a mere fraction of the total home value. Replacement cost coverage, on the other hand, will completely repair or replace to its original condition regardless of how much the cost of doing has gone up over the years since the home was built.

Personal property is typically covered for up to 10% of the total value of the policy. The problem is, an average family can accumulate many tens of thousands of dollars in property after it is all accounted for. Make sure that your homeowner's policy includes enough personal property for all of your possessions, inside the house and out, including furniture, jewelry, appliances, clothing, exercise and play equipment, tools, and such incidentals as the pictures on your walls and knick-knacks on the shelves.

In a home insurance policy, liability covers injuries to people other than your immediate family who are injured on or by your insured property. Likewise, it covers damages caused to someone else's property. Without the liability portion of your home insurance, a neighbor whose house was damaged by a tree falling out of your yard could not only charge you for repairs, she could also sue you in court, and your home could be forfeited if you were not able to pay the bill. Unless you have an umbrella liability policy, make sure your homeowners coverage is up to the task of handling even expensive damages or serious injuries.

answered Apr 3, 2012 by anonymous
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