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4 Important Things to Understand About How Homeowner's Insurance Works

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When it comes to owning a home, you will always want to carry homeowner's insurance. It is one of the best ways to protect your investment. It is important that you understand exactly how your insurance works.

Important Thing #1: Coverage Is Not Retroactive

First, it is crucial to understand that coverage is not retroactive with homeowner's insurance. You can't experience damage to your home, go out, get a policy, and expect it to cover the damage. That is not how it works. You have to already have a homeowner's insurance policy in place before anything goes wrong. You are only covered for things that happen after your policy starts. That is why you will want to have coverage from the day you move into your home.

Important Thing #2: Pay Attention to the Perils

Second, when it comes to coverage, you need to pay attention to the perils. A peril is an event that your insurance covers. With homeowner's insurance, you can either have an open perils policy or a named perils policy.

With an open perils policy, whatever happens to your home is covered unless it is explicitly excluded under the policy. So as long as whatever damages your home is not expressly excluded, you are covered.

With a named perils policy, there is a list of specific perils that are covered. If something happens to your home that isn't on the list, it isn't covered. Most people prefer to go with an open perils policy, as it provides broader coverage; however, you will have to pay a little more for that type of coverage.

Important Thing #3: Earthquakes and Floods 

Third, with homeowner's insurance, earthquakes and floods are not covered. If you live in a state where that is a possibility, you will need to get an add-on to your policy. You're also going to have to buy that add-on from a provider specializing in those types of add-ons. This is not something that is covered with a base policy. If earthquakes or flooding is a risk where you live, it is worth it to get this type of coverage.

Important Thing #4: The Deductible Comes Out of Your Pocket

When you are setting up your insurance policy, you will need to choose a deductible amount for claims. That is the amount you will have to pay towards fixing the damage or loss to your home from a covered situation before the insurance will kick in.

When you choose a deductible, it is important to ensure that it is something that you could pay immediately if you needed to, either from your credit card balance or from your emergency fund. Carefully select an amount that you know you could afford to pay without stressing. Remember, the deductible applies to each claim that you file, regardless of how many you file.

It is important to understand how your homeowner's insurance works. If you are not sure how it works, you will want to talk to your insurance agent, as this is an important protection and benefit.


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