Insurance, Simplified: Your Abode (Part One in a six-part series)

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I understand thinking about insurance is right up there with thinking about what happens with your money when you die (estate planning). Or thinking about taxes.  All are horribly boring and can often be depressing to consider.  To take the sting out of the thought of insurance, here is part one in a six-part series about what insurance you need, and what you don’t, if your aim is simplicity.

First up is property insurance.  If you own stuff, you should insure it against loss or damage.  That loss or damage might be from theft or natural disasters.  There are three main categories of property insurance:  your abode, your ride, and your other stuff.  Protection for your humble abode is the subject of this blog post.

Do you own your home?  (You should answer “yes” even if the bank technically owns it with you!)  If so, you want to insure it.  In fact, if you carry a mortgage on your home, the bank will require that you insure against the loss or damage of your home.  With homeowner insurance, you need to be sure the amount of coverage to replace the home is adequate.  This is called the dwelling coverage.  The other coverages (things like personal property and additional structures) tend to be computed as a percentage of the dwelling figure.

Your homeowner policy not only covers claims you make if the house itself is damaged, but also covers your belongings inside the home — things like your clothes, your furniture, your dishes, your computer, etc.  You get the picture.  Be sure to assess the computed coverage for personal property and make sure the amount is enough to replace all your belongings in the event of total loss.

Most companies have limits to the amount they’ll cover for certain categories of “stuff.”  Jewelry and computers are a good example.  You can learn more about what to do if you have more of these types of belongings than is covered by your homeowner policy here <link>.

The other important provision of a homeowner policy is liability coverage.  Most people intuitively understand that if someone is injured while on your property, your policy covers the expenses incurred as a result.  However, it often comes as a surprise to know this liability coverage also covers you for damages you might inflict while you are, well, anywhere really.  The funny example I always use is a bar fight.  Say you are at the bar and get into a brawl.  You punch someone’s lights out, and they sue you for damages.  Your homeowner policy will kick in here. (Please note that this is not a license to go out and inflict damage on other people!)

What if you don’t own your abode, but instead are a renter?  The dwelling you occupy as a renter is presumably insured by the owner of said dwelling.  A very common mistake is to assume that the owner’s policy will replace your belongings in the event of theft, natural disaster, or damage.  This is inaccurate.  Homeowner policies only cover the belongings of the owner, not the belongings of any renters who live there.

To protect yourself as a renter, you should have renter’s insurance.  This does not provide any coverage on the dwelling itself, but it is coverage for your personal property and liability insurance.  Renter’s policies tend to be extremely affordable, and everyone who rents should consider having one.

So that’s the gist of property insurance for your home.  Here are a few parting thoughts for your consideration:

  • Seek advice:  It is best to get a licensed insurance agent to sit down with you to discuss your needs.  This post can help you get the conversation started.  Pay close attention to the recommendations an agent might give you, and if you feel you are being oversold, get a second opinion.
  • Review your coverage regularly: Don’t buy property insurance and then forget it.  Review it annually to make sure all the coverage you have is still needed, or if any new coverage is required due to new purchases or other changes.
  • Simplifying your “stuff” simplifies your insurance: Because I strive for minimalism, I must point out that downsizing your home can save a bundle on your insurance coverage.  Just sayin.’

Your turn.  How have you handled (or not) your home insurance needs?

Check out our entire six part Insurance Simplified series:

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