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REAL ESTATE

What first-time buyers should know about homeowners insurance

Obtaining homeowners insurance is one of the most important steps to complete before you move into your new home.

Steve Gordon
President, Allied Insurance Agency LLC
  • Not all homeowner insurance policies are the same. Pay attention to the details before you buy coverage.

Congratulations! You’ve just purchased your first home. But before you move in, obtaining homeowners  insurance is one of the most important steps to complete, although many first-time home buyers mistakenly believe that “Insurance policies are all the same, I can go anywhere to buy coverage.” Unfortunately, that is not the case.

Many insurance companies offer homeowners coverage as one of their core policy offerings, but each company and agent’s approach can be different. To that end, I would like to summarize the basic property coverage components of a typical homeowners (“HO-3”) policy, highlighting recommended coverage for a typical one-to-two-family home.

A large tree toppled by the superstorm Sandy crushed the front of this house in Freehold in this 2012 file photo.

Most standard homeowners insurance policy property sections include these four essential types of coverage:

1. The Structure of Your House (“Dwelling”) - Your Homeowners policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disasters listed in your policy. It will not pay for damage caused by a flood, earthquake or routine wear and tear. When purchasing coverage for the structure of your home, remember this simple guideline: Purchase enough coverage to rebuild your home, what is commonly known as replacement cost coverage

2. Other Structures - Most Homeowners policies also cover detached structures such as a garage, tool shed or gazebo —generally for about 10 percent of the amount of insurance you have on the structure of your home. The same types of losses covered by the Dwelling section of your policy would be applicable to the Other Structures coverage.

3. Your Personal Belongings Your furniture, clothes, sports equipment and other personal items are covered if they are stolen or destroyed by fire, hurricane or other insured disasters. The coverage is generally 50 to 70 percent of the insurance on the structure of your home. The best way to determine if this is enough coverage is to conduct a home inventory.

Make sure that you purchase replacement cost coverage for your personal property, to ensure that you do not receive a depreciated settlement on losses to the contents of your home. Expensive items like jewelry, furs, art, collectibles and silverware are covered, but there are usually dollar limits if they are stolen. To insure these items to their full value, purchase a special personal property endorsement or floater and insure the item for its officially appraised value.

4. Additional Living Expenses (ALE or “Loss of Use”) ALE pays the additional costs of living away from home if you cannot live there due to damage from an insured disaster. It covers hotel bills, restaurant meals and other costs, over and above your usual living expenses, incurred while your home is being rebuilt.

Keep in mind that the ALE coverage in your Homeowners policy has limits—and some policies include a time limitation. However, you can generally increase the amount of ALE coverage for an additional premium. Your ALE coverage limit is separate from the amount available to rebuild or repair your home. Even if you use up your ALE, your insurance company will still pay the full cost of rebuilding your home up to the policy limit.