The process of purchasing a first home can be a draining experience for buyers, especially when tasked with reading and understanding all the documents required during the purchase and closing process. Since the selection of the home insurance coverage often takes place just before closing when the level of buyer fatigue is highest, the policy documents are often skimmed over, instead of carefully studied. 

Buyers who admit to knowing little about home insurance in general, as well as the details of their coverage, can use the following information to become more informed. 

Understanding the differences between cash value and replacement value

Home insurance policies are typically written as cash value or replacement coverage and homeowners need to fully understand the differences between the two. Of the two, cash value coverage can be less expensive because they provide less actual coverage. 

A cash value policy is based on market value or the actual cost of the home at the time it was purchased. Homeowners who experience a covered loss years later may be shocked to learn that their insurance company does not have to pay them an amount equal to the current, higher value of their home. Cash value policyholders may find that rebuilding a home similar to their original one will cost much more than the amount the insurance company is paying out for their loss. 

In contrast, replacement value home insurance policies are based on the value of the home at the time of the loss and the actual cost of rebuilding it. Replacement value insurance is typically more expensive to purchase but the extra cost is negligible, should a covered loss occur. 

Understanding how homeowner actions can put the policy at risk

New homeowners who haven't taken the time to study the details of their coverage should also know that there are several situations that could result in the cancellation of their home insurance coverage. Some of the most common reasons for cancellation notices to be sent include: 

• Vacating the home for more than a month 
• Renovating the home in a way that increases value beyond your current coverage limits
• Using all or part of the home as a rental or using it as a home business location
• Leaving the home unsecured

Home insurance policies can also be canceled if the homeowner's credit scores fall, home accidents are not promptly reported, or if homeowners adopt a pet that the insurance company views as potentially dangerous. 

Reading and comparing home insurance coverage can be confusing, especially for first-time homebuyers. Taking the time to discuss your home insurance needs with a reputable insurance broker or agent will ensure that you purchase the best policy for your situation, while also ensuring that you fully understand the coverage for which you are paying. To learn more, contact a company like Norman Heil Insurance.