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Homeowners Insurance

If you own a home you better understand your homeowners insurance.  Yeah, it may be boring, but it may also be the most important contract that you have signed regarding your home that you haven't read.  The homeowners insurance business has changed over the last 20 years and for most consumers these changes have gone unnoticed.  These changes have been made to help insurance companies remain profitable in the face of a difficult economy and changing weather patterns.  Here are some things that you need to look for in your policy:

1)  Know your company.  All insurance companies are not the same.  Some companies have suffered recently because of losses due to foreclosures and bad weather.  Smart insurance companies were able to get off bad risks when homes foreclosed and have been able to reduce their exposure to coastal storms.  Check AM Best.  If your company has an FSR of less than an "A" you should look for a new company.
2)  Know your home:  Is your home insured to the correct value?  You are ultimately responsible for ensuring your home is insured to the correct value.  The insurance company will not pay more than what you see on the policy unless there is an endorsement that extends the value under some circumstances.  So, you need to do some research, talk to your agent or ask a builder.  You may be shocked to learn that it costs a lot more to rebuild a house then it does to build a new house.  Just because the value of your home has declined doesn't mean that the cost to rebuild has gone down.  Do your research and insure to value.
3)  Know your options:  What optional coverage do you have?  Most homeowners insurance polices provide basic coverage.  What distinguishes a good policy from one that may leave you exposed lies in the optional coverage.  Options like Sewer and Water Back Up, Law and Ordinance, Personal Injury Liability, Earthquake, Loss Assessment, Inland Marine can all drastically change your policy, it's premium and the coverage it provides.
4)  Know your deductibles.  To reduce exposure and costs most insurance companies are breaking out their deductibles for different causes of loss.  Most insurance companies have a separate deductible for wind storms and or hurricanes and perhaps hail.  Sometimes these deductibles are simple and are similar to your other deductibles.  However, sometimes you will see a percentage next to the "Windstorm Deductible" like 1% or 2%.  This means that your deductible is a percentage of the coverage amount.  So, if you have a home insured for $300,000 on the dwelling and you have a 1% deductible then you really have a $3,000 deductible.  Better check that before you have a claim.
5)  Know your agent.  If you deal with a national company do they have local representation?  If you work with a company on the internet how will you communicate with them following a major loss?  Is there someone that you can go and talk to if you have a problem with a claim?  Do you have an advocate? When was the last time you reviewed your coverage?  Do they try to contact you to review your policy each year?

If you don't know these five things about your homeowners insurance you should make it a priority.  Your homeowners insurance policy is a contract.  This contract specifies what is covered and what is not covered.  Your insurance company will pay claims to you following a loss only if your loss is covered.  If you don't have the right coverage you will pay out of pocket and the costs can be more than you can afford.  Know your homeowners insurance policy.
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