When you are buying a new home or upgrading the insurance policy on your current home, the cost of insurance coverage plays a big role in your finances. The proper coverage for your home comes in three basic levels. While other costs for different differing policies is more detailed and will become clear, a basic understanding of the different levels of coverage will help you get started with the decision making process.
Always seek the help of an insurance professional so you make the right decisions and keep the insurance costs as manageable as you can for your budget and needs. Focus on the homeowners insurance cost that has the most affordable rates with the most extensive coverage. You can have a professional estimate done with the possessions and market property value so you will be able to fully understand your options.
Not paying the premiums is not an option, so you will need to have a point to cap off the policy costs if funds are limited. Tell your insurance professional about all these needs in order for them to determine the better costs for you, even in hard times. You should have at least a plan for costs of living for the next year. Consider some obstacles you may face for paying premiums.
For example, what will you do if you lose your job? There may be some additional insurance plans you can get for this, but most people do not insure their jobs. Ideally, the best way to be prepared for this unfortunate event is to have at least 3 moths of total cost for living kept in savings. This will be cheaper than any other policy, which would be entirely impractical.
The first and most affordable level of coverage is the actual cash value of the home. It does not take possessions into account and may not cover certain specifics you want covered. However, if money is an issue, this is the most basic coverage you will be able to afford. Understand that the actual coverage takes depreciation into consideration. All that you can get back will be based on the current market value of your home. If that is lower than the cost you paid, then you may find yourself in a bind if you want to completely rebuild after damages.
The next coverage for replacement costs is usually more expensive than cash value coverage. An advantage here is that the coverage does not consider depreciation like the other policies. Since the costs to repair damages to homes may be more costly than before, you have an advantage to get all costs covered or at least most costs. If you want more coverage than this, you will need to consider the next level of coverage.
When you get insured for guaranteed replacement cost, depreciation is not taken into account. You will be able to replace any or all parts of your home and the possessions in it without being concerned about present market value. You get back what you paid for it. It allows you to extend coverage limitations as you see fit.