Cheap Home Insurance: Cost Versus Coverage

It's only natural to want to buy cheap home insurance; no savvy shopper overlooks ways to save on premiums. But remember the old saying "penny wise, pound foolish." Mortgage lenders require that you purchase only a minimum amount of homeowners insurance. However, buying cheap home insurance could be your most expensive mistake if your policy doesn't cover the cost of rebuilding your home.

Almost any standard homeowners insurance policy provides coverage for damage to your home (and many of the items in your home) caused by theft, fire and lightning, smoke, frozen pipes, and ice and snow. It also covers liability claims, medical payments to third parties, and legal costs if a lawsuit is brought against you. Most such policies exclude damages caused by an act of war, nuclear accident, flood, earthquake, and terrorism. Purchasing cheap home insurance that does not offer these standard coverages is a serious, and potentially costly, mistake.

Make a Home Inventory

Standard policies also limit coverage on high-priced items like engagement rings, watches, furs, antiques, and other valuables. Rather than guess, or settle for cheap home insurance that doesn't cover such items, make a complete home inventory. Take pictures or video of your furniture, jewelry, artwork, antiques, appliances, computer equipment and other electronics, and any other item of value. Keep this information and any other identification materials somewhere safe. Now you can make an informed decision as to how much insurance you should carry for these items. What's more, you'll have an accurate record of your possessions on hand in the event of a disaster.

Cheap home insurance can also shortchange you when it comes to valuing property. Insurers generally use one of two methods. Actual cash value pays you an amount equal to the replacement value of the property minus depreciation for the years you owned the item. Replacement cost is more expensive, but it pays you the full value of the item today so that you can replace the old item with a new one.

Buying cheap home insurance will save you money in the short run, but be sure to evaluate the policies you are offered carefully--it's what happens in the long run that matters.

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