If you are in the market for home insurance, there are a few things to consider beyond price and affordability. Factors such as the type of dwelling you own and coverage you need are equally important when shopping around for the best policy.
Most commonly, you will find three types of property policies: comprehensive, named perils, and broad policies. Following is an overview of each of these policies.
Comprehensive: a comprehensive policy will cover all risks to your home and possessions, except those specifically excluded from the list. Frequently excluded perils from a comprehensive policy include earthquake, flooding, pollution, and other natural disasters.
Named Perils: contrary to a comprehensive insurance, a named perils insurance contract only covers the perils specifically named in the policy. An example may be an insurance contract that specifies losses due to fire or theft.
Broad Policy: in essence, a broad policy is a combination of the comprehensive and named perils policies.
When it comes to coverage, there are basically three different levels:
Actual Cash Value: Actual cash value covers the cost of the house plus the value of your belongings after deducting depreciation. Under this option, if you were to put in a claim for a used item, you would receive an amount in return equal to the value in its current condition, and not how much you paid for it.
Replacement Cost: Replacement cost covers the actual cash value of your home and possessions without the deduction for depreciation, so you would be able to repair or rebuild your home up to the original value.
Guaranteed Replacement Value: A guaranteed (or extended) replacement value policy covers whatever the cost is to rebuild or repair your home – even if it’s more than your policy limit. This is the most comprehensive coverage as it accounts for increased replacement costs and provides homeowners with wiggle room in case construction prices rise.
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