How to Pick the Homeowners Policy That’s Right for You

Congratulations! You’ve made the decision; it’s time to become a homeowner. But before you even start your home search, look into the kinds of homeowners insurance you’ll need. Follow these tips to protect your new family home for a lifetime:

Insure your home at replacement value

When you purchase homeowners insurance, you have a choice between actual cash value and replacement value. Actual cash value insures your home at the amount it was purchased for. While this seems like a good idea, keep in mind that housing prices fluctuate with the market. Replacement value covers a total loss, including rebuilding and labor costs. It’s pricier than actual cash value, but worth the investment.

Purchase flood insurance or other endorsements

Consider where you live and the correlated risks. Water damage from a burst pipe is typically included in your home policy, but if a flood ruins your basement, you’re responsible for the damage. Live in California? Earthquake damage is also very expensive and isn’t covered by most insurance plans. Find out if you live in a high-risk location that is prone to floods or earthquakes. Floods are the most common natural disaster in the U.S., so the extra insurance cost is worth it.

Set the right liability limits

Most homeowner policies automatically include a $100,000 coverage limit, but that may not be enough. In an accident, you could be held responsible for property damage and bodily injury totaling well over $100,000. Evaluate your personal assets and earning potential to find the right limit.