To Protect Yourself from Catastrophic Loss, Calculate the Proper Amount of Homeowner’s Insurance

There are actually two basic ways that you can cover your home through an insurance policy.  There is the type of policy that pays a set amount, usually the market value of the house when it was bought, in case there is a catastrophe which causes the total loss of the dwelling.  And there is the type of insurance policy that will pay the replacement cost of the house at the time when the catastrophe actually occurs.  The latter home insurance policy is more expensive, of course, because homes tend to appreciate over time, notwithstanding the real estate crisis that the United States is currently going through. 

While you are considering the proper amount of insurance that you need, you might also want to think about the amount of liability coverage your insurance policy will have.  Your homeowners insurance policy will provide liability coverage in case someone gets hurt or if you are sued for damages. 

In any event, you need to know the fair market value of your home in order to determine how much insurance you are going to need.  Fair market value of the home is calculated excluding the value of your personal possessions and the land that your home sits on.  All you would have to do is determine what comparable homes in your area are selling for and you will be close to fair market value. 

Once you have determined fair market value, you have to determine the value of your possessions such as furniture, appliances and even fixtures.  It is always a good idea to catalog the items that you own, take pictures and save the receipts with the date when the item was bought.  This will ascertain proper ownership of the items within the dwelling.  If you have a video camera, a web camera or even a cellular phone with video capabilities, you can record a video of your property and describe it.

You will then have audio visual proof of what is in the house, along with the accompanying documentation.  This will be very helpful if you should be unfortunate enough to suffer the total loss of the home.  When you complete your inventory, it needs to be put in a safe place, but not in your house, for obvious reasons.  You need to have access to your documentation and video if something should happen to the house.

You may be asking yourself why it is necessary to do all this if the insurance company is going to go to your house, inspect it and make an estimate as to its replacement cost.  Well, if you have taken the time to find out the fair market of your home and how much your personal property is worth, then you will know whether the insurance company is giving you a fair estimate.  If the estimate is too high, you may end up paying too much for your homeowners insurance policy.  On the other hand, if the estimate is too low, you will not be able to replace your home and everything in it if a catastrophe should arise.

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