When you buy a house, it is very important to insure it. Life is full of unexpected surprises, and while one family may never have a problem with their house, another one can have it burned or flooded. A proper house insurance will protect your house from fire, wind damage, earthquake or flood. It will also protect all your belongings in the house from any kind of danger, like fire or theft. Homeowners insurance may provide you and your family with personal liability coverage. This kind of coverage is designed to offer specific protection against third party claims, when payment is not made to the insured, but to someone suffering loss in connection with the danger to your house. A good example may be the losses of your neighbors in case of fire in your house.
The cost and the amount of your house insurance are closely related to the following basic data:
The value of the house. Depending on the criteria, your house may have 3 different values:
- how much you are taxed on;
- how much you can sell it for;
- how much it will cost to rebuild it.
The location of the house has a huge impact on its value. The size and quality of land that goes with the property is another huge factor to consider. Five acres of fertile or simply pretty land can surely be worth more than 10 acres of raw wetland. Combine the location and the land, and you will get a totally new estimate of your house value.
The bank estimate. Banks do not want to underinsure or over insure. As you purchase a home, the bank is going to want you to insure the house for the amount of your loan. This may not be a correct estimate, as it does not take into account the value of the land. It will still be there if the house completely burns down. Or it will suffer losses due to toxic waste, underground waters and similar hazards while the house may be intact. Always be aware of the correlation between your house, your land and your insurance.
Cost estimation tools. The value of your house also depends on its age, square footage, number of stories, type of roof, type of construction, type of siding and all other aspects connected to the structure. Kitchens are important. A basic kitchen does not bring as much additional value as a modern one with custom cabinets, granite countertops and a ceramic tile floor. You may also receive a replacement cost estimate from a licensed contractor in your area.
After you have all the above factors in mind you may be better prepared for the decision re. the amount of the insurance. A small old house in a rocky area with a high incidence of earthquakes should sometimes be insured for the same amount as a newer and bigger house in a quiet suburban area. You don’t want to pay a lot of money for the coverage you are unlikely to receive. On the other hand, you should have a comfortable cushion in the event of a calamity.
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