With the recent recovery of the US real estate market, many people are setting out on their first journey into homeownership. As they navigate that tough process, the need for homeowners insurance arises, so they can best protect their investment. Much like buying a home, getting the right level of insurance can prove overwhelming. Fortunately, they can look to Heath Ritenour, Chairman and CEO of Insurance Office of America, for an inside look at getting set up. Here’s what they need to know.

Why Homeowners Need Insurance Coverage

Homeowners insurance protects homeowners and their mortgage lender from losses caused by major incidents, like snowstorms, fires, and falling trees. As long as the home is not in a high-risk area, the policy can even help out in the event of a flood, earthquake, or other natural disaster.

In order to get full protection from potential losses, homeowners must set up their policy by selecting their ideal coverage level. They may pick its actual cash value, which includes the residence and its belongings minus depreciation. According to IOA’s Heath Ritenour, they can go with the replacement cost, which takes depreciation rates out of the picture. For the highest level of coverage, they can select the guaranteed replacement cost to skip the policy limits.

How Insurance Coverage Protects from Losses

No matter which level of coverage they select, the policy will likely come with hazard coverage plus cover liability and temporary living expenses. The hazard coverage applies if anything happens to the home structure, outbuildings, and belongings.

Oftentimes, homeowners insurance even covers belongings while outside of the house. If the homeowners lose their diamond earrings at the store, for example, then they can file a claim for them through their insurance policy.

Liability coverage helps homeowners pay for any property damage or bodily injury caused by someone in the household, including pets. If someone gets injured on their property, the policy will also cover medical bills up to the set limits.

As for temporary living expenses, this type of coverage comes into play if the home suffers extreme damage and is no longer habitable. Homeowners can then file a claim that helps them relocate to a hotel or other living space until the repairs are complete.

What Insurance Companies Look at While Establishing Rates

Along with the coverage level, insurance companies look at several different factors while setting the rate, such as the perceived risk, condition of the home, and the value of its construction materials.

Then, they also weigh external factors to further assess their risk of having to pay for claims. The neighborhood crime rate and overall risk of natural disasters, for example, both play a role in the rate calculations.

Once they have assessed all these factors, says insurance expert Heath Ritenour, the insurance company will let homeowners know their premium amount. At that point, they can elect to adjust the deductible and coverage levels to bring down the premium if it doesn’t suit their budget. Once that’s done, it’s just a matter of signing up for the coverage and paying the premium as instructed to maintain their policy.

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