Protect your most valuable asset with homeowners insurance.
Your house is not only your home, it’s also an investment. So don’t neglect to properly protect it. A homeowners insurance policy will safeguard your house in case of unforeseen events like fire, burglary or natural disaster. But which home insurance policy is the right one for you?
Knowing your options and what is required is essential to choosing the policy that best suits your needs and ensures that you are covered when you need it. That last thing anyone wants to deal with during a disaster is learning that you are not covered.
But you also don’t want to over-insure your home and pay a higher premium in the process. This comprehensive guide will help you strike the right balance by equipping you with the knowledge that you need to make an informed decision when selecting homeowners insurance. You’ll be able to rest assured that you’re not paying too much for your policy and that your home is protected.
What does homeowners insurance cover?
A typical homeowners policy covers both the dwelling itself and your personal belongings within the home, as well as living expenses if you can’t live in your home while it is being repaired — this coverage is often referred to as “additional living expenses” or “ALE.” Most policies also cover your liability if someone is injured while on your property. At a bare minimum, make sure your policy includes those four coverages.
- The building
- Your belongings within your home
- Additional living expenses
What types of disasters are covered?
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. Here is what is covered in each type of policy:
Homeowners 1 (HO-1) 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:
- Fire or lightning
- Windstorm or hail
- Riot or civil commotion
- Damage caused by aircraft
- Vandalism or malicious mischief
- Volcanic eruption
Homeowners 2 (HO-2) 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:
- Falling object
- Weight of ice, snow or sleet
- Water damage from burst pipes or similar event
- Sudden, accidental cracking, burning or bulging of hot water or similar system
- Freezing of plumbing or similar househeld system
- Sudden, accidental damage from artificially generated electrical current
Homeowners 3 (HO-3) 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 an older home, condo and co-op insurance, mobile home insurance and rental insurance.
What isn’t covered by my home insurance policy?
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:
- Flood. Although your policy will not cover flooding, FEMA’s National Flood Insurance Program (NFIP) provides flood insurance to homeowners, as do a very few private insurers. Flood insurance is required if your home is in a flood designated zone. To find out if your home is in a flood zone, visit FEMA’s Flood Map Service Center and enter your address.
- Earthquake. Like flood insurance, a seperate policy can be purchased to protect your home from an earthquake. Most private insurers offer this type of policy or offer extended coverage on your home insurance policy at an additional cost. In California, a state prone to earthquakes, you can also purchase earthquake insurance from the California Earthquake Authority.
- War. Damage to your home caused by an act of war is not covered under homeowners insurance. Let’s hope this will never even be an issue.
- Nuclear accident. Even though insurance can’t be purchased to cover damage cause by a nuclear accident, you are still afforded protection under the Price-Anderson Act. This law requires nuclear power plants to obtain liability insurance to provide compensation to the public for any damages that are the result of a nuclear accident. Again, we hope this is never an event anyone has to worry about.
- Ground movement. This includes mudslides, landslides and sinkholes. However, in Florida and Tennessee, insurance providers are required to offer additional coverage for sinkholes.
- Wear and tear. Any damage caused by gradual deterioration is not covered. Maintaining your home is your best prevention against this type of damage.
- Sewer backup. Damage caused by a sewer backup falls under “wear and tear” and is not covered. Maintaining the sewer pipes beginning at the city sewer main and leading to the house is the homeowner’s responsibility. If you are concerned about being protected from this type of event, some insurers offer additional coverage.
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What levels of coverage are available?
In addition to choosing what your policy covers and under which circumstances, you will also need to choose your level of coverage. The level of coverage your policy provides is an important factor to weigh when choosing a policy. It can greatly affect how much you will be paid to repair your home and replace items that may have been damaged. There are three main levels of coverage; here is how each one works:
- Actual cash value. This policy will cover 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, because it has depreciated in value from when you originally purchased it.
- Replacement cost. This type of policy covers damages caused by a covered peril without deducting costs for depreciation. Using our example, with replacement cost, your insurance provider will cover the cost to purchase a new computer, no matter how much your damaged computer may have depreciated.
- Guaranteed or extended replacement cost. This policy offers the most protection because it will cover the costs of damages even if it exceeds your policy’s limit.
When choosing your coverage, keep in mind...
- The real estate value of your home is not the same amount as what it would cost to rebuild your home. Don’t consider the cost of your land when determining your coverage. How much would it cost to rebuild your home?
- But also keep in mind that it might cost more today to rebuild or repair your home than when it was originally constructed. This is especially true after a natural disaster like a hurricane, when supplies and labor are in high demand.
- If building codes have been updated since your house was built, this may also cause the cost to reconstruct your home to be more expensive today.
What additional coverage is available?
You don’t want to overpay for homeowners insurance, but in your search for a good deal, don’t make the mistake of under-insuring your home and your possessions. A traditional policy will typically cover the four basics — the building, your belongings within the home, liability and additional living expenses — but there are limits. Here is what you might want to include in your policy in addition to traditional coverage:
- Endorsements. Do you have valuable jewelry or expensive antiques? Your basic policy won’t cover the full cost to replace these items. In this case, you would need to purchase a rider, or endorsement, to cover the full cost of replacing this type of item.
- Extra liability/umbrella insurance. An umbrella policy will cover you beyond the limits of your traditional policy. This includes liability and damage to the property.
As mentioned previously, additional insurance can be purchased for the following perils — and is, in fact, sometimes required depending on where you live:
- Sewer backup.
How do deductibles work?
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.
How can I lower my homeowners insurance premium?
There are many ways to lower your costs.
- Consider increasing your deductible. Typical deductibles range from $500 to $1,000. Raising your deductible will lower your premium; however, don’t sacrifice a lower premium at the risk of not being able to afford your deductible should an issue arise. Weigh the risk vs. reward carefully.
- Bundle your insurance policies. Purchasing your auto and home insurance from the same provider often results in a discount.
- Secure your home. Insurance companies offer discounts for taking extra precautions to secure your home. Security systems, smoke alarms, storm shutters, reinforced building materials and more can reduce your premiums.
- Take an inventory of your home’s contents. Keep a running inventory of all the major possessions you own and how much they’re worth. This lets you get the coverage you need without paying too much whenever you renew your insurance. Did you pass on that expensive piece of jewelry to your niece? Cancel the endorsement you purchased to protect it in case of theft.
- Maintain your property well. This reduces the chances of you needing to make a claim and keeps your premiums low.
- Shop around. Investigate all of your options and find the one that best works with your budget. But don’t make the mistake of choosing a policy strictly on the basis of cost. Check the reputation of your provider. You’ll want good customer service when disaster strikes.
What are the most common home insurance claims and how can I avoid them?
Water damage, wind and hail damage, and theft are three of the most common insurance claims. Be proactive and minimize the risks by following these tips.
Water damage unrelated to weather. 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.
- Regularly check pipes for leaks. Avoid flushing foreign objects down toilets and make sure you address any signs of a leak as soon as possible, because even a small leak can cause an exponentially growing amount of damage over time.
- Keep an eye out for mildew and mold, and try to scrub it away as soon as possible. It can also be a sign of internal water damage. If mold keeps appearing in a well ventilated room, it could be a leak that is not visible. Ignoring these issues can count as a failure to adequately maintain the home, which can be used to reject insurance claims.
- If you live in a colder climate, insulating your pipes will help to prevent them from bursting.
Wind and hail damage. 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.
- Check your roof for loose shingles and make any necessary repairs.
- Protect your windows. If you live in an area that’s prone to storms, it might be worth investing in storm shutters and impact-resistant windows.
- Durable siding and impact-resistant shingles will also help to protect your home from hail.
Theft. 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.
- Check all entry points to your home and make any necessary repairs, like loose hinges or faulty locks.
- Installing a home security system will deter would-be thieves.
- Although it’s convenient when you find yourself in a bind, don’t hide a spare key outside your house. Criminals are well aware of this practice. Instead, consider giving a trusted neighbor a key to your home.
- Exterior lighting is a cost-effective deterrent to thieves.
Common questions about home insurance
Do I need home insurance if I'm renting?
No, you are not required to obtain insurance if you are renting. However, you can obtain renter’s insurance to protect your belongings. The structure itself can only be insured by the owner, or landlord.
Am I legally required to get home insurance?
Home insurance is not required by law. However, unless you are able to pay cash for your home, your mortgage provider will require you to obtain insurance. Home insurance is advisable, as it will protect what is likely your largest asset.
Is there an easy way to get a home insurance estimate?
Online calculators will give a quick, general estimate. But contacting an agent to get detailed information and an accurate estimate before making your decision is best.
Q. How much will my premium increase when I make a claim?
Are carpets and blinds part of the building or the contents?
If it’s a permanent fixture it’s part of the building. If it’s removable it’s part of the contents. Carpets and blinds can be ambiguous, but this should be clarified in the insurance policy. When in doubt, ask the insurance company.
Can I get home insurance for buildings under construction?
Yes. You can get insurance to cover the structure while it’s still under construction, as well as to protect yourself from liability issues.
Is home insurance tax deductible?
No, according to the IRS you cannot deduct your home insurance.
Does home insurance cover termite damage?
Home insurance policies do not typically cover termite damage. Damage from vermin and insects is commonly excluded, and some insurers may decline to cover a home if there are signs of termite damage. Preventative pest control is a more effective way to protect your house from termites, and it can be a good idea to take this step prior to your home being assessed for insurance purposes.
Can I adjust my policy in the future?
What should I do if my premiums suddenly increase?
A frequent complaint regarding insurance providers is that they will suddenly raise premiums. If your premium has suddenly increased without explanation, contact the insurance company to see if it’s a mistake. They must explain increases if asked. From there you are can either try to renegotiate a lower premium or take your business elsewhere.
How do I make a claim?
Contact your insurance company as soon as you can to let them know you’re making a claim. You will usually be required to fill out a claim form, and in the event of large loss they will send someone to assess the situation. Be honest, and keep all the appropriate documents and evidence to support your claim, such as photographs, video, receipts, etc. Cooperate with your insurer and assessors however you can to make the claim go as smoothly as possible.
How do I cancel my insurance policy?
All policies will let you cancel rather than renew when the time comes. Only some, however, will let you cancel at any time. To do so, notify your insurance company.
Can I start cleaning up before the insurance assessor arrives to inspect the damage?
Yes, although if you do so before the assessor arrives you should take photographs or video the damage first. Don’t throw away damaged items until the assessor has seen them, unless it’s a health hazard.