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Understanding
Homeowners Insurance
Look
for exclusions to coverage. For example, most
insurance policies do not cover flood or
earthquake damage as a standard item. These
coverages must be bought separately.
Look
for dollar limitations on claims. Even if you
are covered for a risk, there may a limit on how
much the insurer will pay. For example, many
policies limit the amount paid for stolen jewelry
unless items are insured separately.
Understand
replacement cost. If your home is destroyed
you’ll receive money to replace it only to the
maximum of your coverage, so be sure your
insurance is sufficient. This means that if your
home is insured for $150,000 and it costs $180,000
to replace it, you’ll only receive $150,000.
Understand
actual cash value. If you chose not to replace
your home when it’s destroyed, you’ll receive
replacement cost, less depreciation. This is
called actual cash value.
Understand
liability.
Generally your homeowners insurance covers you for
accidents that happen to other people on your
property, including medical care, court costs, and
awards by the court. However, there is usually an
upper limit to the amount of coverage provided. Be
sure that it’s sufficient if you have
significant assets.
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