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Though home insurance isn’t required unless you have a loan, it’s probably a good idea to consider for most homeowners. A homeowners insurance policy will safeguard your house in case of unforeseen events like fire, burglary or natural disaster.
A typical homeowners policy covers both the dwelling itself and your personal belongings within the home. You’ll also typically get coverage for other structures on your property, like a free-standing garage or shed, plus loss of use coverage, which pays for you to stay in a hotel while your home is being repaired. Most policies also cover your liability if someone is injured while on your property.
Thunderstorms, lightning, burst pipes, fallen trees, fire, ice — the list of things that could potentially damage or destroy your home is endless. Your home is likely your most valuable possession, and homeowners insurance protects it from the unexpected.
It also protects what’s in your home, so if your furniture is damaged in a kitchen fire or your television is stolen, your insurer can help you replace it. And if you don’t own your own home, renters insurance can still protect your belongings.
Think about all those hours you spent turning your house into a home. Perhaps you invested in creating a little veggie patch in the back garden or gave up your weekends to renovate the perfect kitchen. Maybe you had to fight off other buyers to come out on top in the property market.
Without homeowners insurance, one disaster might require you to dig into your savings to clean up the mess, or be left without a way to fix the damage if your savings can’t cover it. The dwelling coverage in your homeowners insurance policy makes sure it doesn’t come to that in a worst case scenario.
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Homeowners insurance policies are broken down into three main categories, with each policy covering damage caused by different types of events or disasters — referred to as “perils” in insurance-speak.
This is the most basic policy and offers limited coverage; it usually doesn’t cover your personal items within the home. Because of its limited coverage, it is not available in most states. It provides coverage for only the perils that are named in the policy, which typically include:
HO-2 is a step up from HO-1, offering more coverage, usually including your belongings and liability. But it is stilled a named-perils policy, meaning it only covers the perils specifically named in the policy. It includes all of the perils under HO-1, plus the addition of these:
Sometimes referred to as the “deluxe” policy by home insurance providers, HO-3 is an open-perils policy. An open-perils policy will include coverage for all perils except those specifically noted in the policy. Most mortgage providers require a minimum of HO-3 coverage.
In addition to the three main home insurance policies, you can also purchase a policy for non-standard home types.
Perils typically not covered in a homeowners insurance policy include: a flood, an earthquake, sewer backup, or normal wear and tear or maintenance to the home. However, additional coverage can be purchased to protect against these occurrences.
Additions to your home insurance policy are referred to as “floaters,” “riders” or “endorsements.” These can include flood insurance, earthquake insurance, floater policies for valuable items like furs and jewelry, and an umbrella liability policy. We’ll discuss endorsements in further detail later in the guide. Here is what is typically excluded from most standard policies:
There are many ways to lower your costs.
In addition to choosing what your policy covers and under which circumstances, you will also need to choose your level of coverage. It can greatly affect how much you will be paid to repair your home and replace items that may have been damaged.
Covers damages minus any depreciation in value of your home or its possessions. For example, with actual cash value, if your computer is damaged by a covered peril, your insurance provider will pay for what your computer is worth today, not how much it would cost to purchase a brand new one.
This type of policy covers damages caused by a covered peril without factoring in depreciation. Using the damaged laptop example, with replacement cost, your insurance provider will cover the cost to purchase a brand new computer.
This policy offers the most protection because it will cover the costs of damages even if it exceeds your policy’s limit. Using the laptop example, you might agree to a value your laptop is worth. If it’s damaged, you’d be reimbursed for that full value regardless of hitting your coverage maximum.
You buy a TV for $500
Your TV is worth $200 due to depreciation and newer models on the market
Your TV catches fire and you lose the entire appliance
Based on depreciation value, your insurer will pay for what the TV is worth today so you will be receiving only $100 for your appliance
Since this policy won’t take depreciation into account, you will be receiving what you paid for your TV 2 years ago so you will receive a grand total of $500
The deductible is how much you must pay toward repairing your home or replacing any belongings that are damaged. You will have to pay a deductible each time you file a claim. Deductibles can either be a set amount or a percentage, but are usually a predetermined amount. The average deductible is $500-$1,000.
The deductible for your policy is determined when you purchase your insurance policy. A higher deductible results in a lower premium. But make sure your deductible is low enough that you can afford to pay it if you need to repair damage to your home that is covered by your policy. Your mortgage company also might put a limit on how high your deductible can be.
When Jess purchased her home she wanted to get the least expensive home insurance she could find. So she opted for the highest deductible her mortgage company would allow, which was $1,500. Soon after moving into her home, a hail storm caused severe damage to her roof and needed to be completely replaced. She filed a claim with her insurance provider and got an estimate for the roof. The cost of a new roof would be $8,850. But because her deductible was $1,500, her insurance company cut her a check for $7,350. Jess had to cover $1,500 of the cost to replace her roof.
Water, storm damage and theft are three of the most common insurance claims. Be proactive and minimize the risks to your home.
It might come as a surprise to learn that most water damage is not caused by weather, but by burst pipes and other plumbing problems.
An increasingly common cause of damage and source of insurance claims, it makes sense to take steps to ensure your home is protected from storm damage.
No one wants to think that this might happen to them, but unfortunately it is all too common. Take steps to prevent a break-in at your home.
