Your home is your biggest investment, and you want to do everything you can to protect it. But how do you know which type of home insurance is right for you? And what exactly does homeowners insurance cover? what does it not cover?
Insurance can be complicated, but it’s not rocket science. Don’t let a lack of knowledge stop you from protecting your home and finances. The reality is that many homeowners are underinsured, exposing them financially.
Our guide to homeowners insurance will break down everything you need to know about homeowners insurance!
- what is homeowners insurance?
- what does homeowners insurance cover?
- What does homeowners insurance not cover?
- types of homeowners insurance
- How much home insurance do I need?
- How much does homeowners insurance cost?
- how to save on homeowners insurance
- how to get the best home insurance
- rebuild your home (extended dwelling coverage)
- replace your stuff (personal property)
- cover injuries and damages that occur on your property (personal liability)
- reimburse your living expenses after the loss of an insured home (additional living expenses)
- if you have really expensive jewelry, you can get something called programmed personal property. this will cover a specific item that will normally need to be appraised.
- Backup water coverage will cover the costs of clogged sump pump or sewer line accidents.
- law or ordinance coverage will pay to make sure your home meets the latest building codes during a repair.
- Equipment Breakdown Coverage will help if your HVAC or major appliances break down (beyond normal wear and tear).
Homeowners insurance is financial protection for your home and personal belongings in the event of accidents, fires or other disasters. it is a way to avoid financial ruin by transferring the risk to an insurance company. Homeowners insurance also protects you from lawsuits from accidents on your property (think dog bites or other injuries).
This is how it works. By paying monthly premiums, you enter into a contract with your insurance company. your insurance company agrees to cover you in the event of an incident, if you are covered. you pay a certain amount out of pocket (your deductible). then, you file a claim and your insurance company will pay any cost that exceeds your deductible, up to the policy limit.
the end result? If you own a home, you need homeowners insurance. In fact, almost all mortgage companies require you to have homeowners insurance, although no state law requires it. Even if you rent, many landlords require you to have renters insurance to protect your things.
Like most types of insurance, homeowners insurance isn’t just an umbrella policy that covers everything. it is much more complicated than that. That is why it is so important to educate yourself. it’s the first step in making sure you’re in that sweet spot of homeowners insurance coverage. (And if you’re looking for homeowners insurance because you’re just starting to buy a home, check out our free homebuyer’s guide.)
Let’s start with what homeowners insurance covers so you can understand where you’re protected. pro tip: your insurance declaration page will show you what coverages you currently have so you can see where the gaps are.
A typical homeowners insurance policy addresses five basics.
1. housing coverage
This coverage pays to repair or rebuild your home (also known as your house and everything related to it) due to damage from disasters such as fire, windstorm, hail, lightning, theft and vandalism. therefore, if a tornado destroys your roof, the homeowners coverage will kick in and your insurance company will pay to replace it. however, there are some exceptions, like damage from floods and hurricanes (more on that in a bit).
2. coverage of other structures
Other structures coverage covers things other than your home. Some examples are: detached garage, tool shed (or she shed?), barn, gazebo, pool, fence, or driveway.
Basically, any structure that is a permanent and valuable feature of your property. But this coverage has limits, usually around 10% of the total policy you have on your home.
3. personal property coverage
Personal property coverage protects what’s in your home—the possessions you use every day, like clothes, furniture, and electronics. it also covers expensive things like jewelry, art, and collectibles. But there’s often a dollar limit on those high-end items, so make sure you have enough insurance to replace everything. most insurance companies cover your belongings for 50% to 70% of your home’s value.1 Create a comprehensive inventory of all your things to keep track of your belongings and their value.
4. personal liability coverage
Personal liability protection covers you from lawsuits for bodily injury, property damage that occur on your property, and even dog bites (depending on breed). Personal liability coverage doesn’t cost a lot, so you can get a lot for a reasonable price. You must have at least $500,000 in liability because, let’s face it, no one sues for $250,000. And if you have a higher net worth, you should also look for umbrella insurance.
5. additional living expenses (ale)
Additional Living Expenses (ALE) coverage helps pay for the costs of living away from home due to damage caused by an insured disaster. Whether it’s for a few days or even months, beer covers things like hotel bills, restaurant meals, pet care, transportation, and even moving expenses.
however, beer won’t pay all your bills. covers costs above your usual living expenses (such as your mortgage and regular grocery budget).
Now that we’ve seen the good news of what a typical homeowners insurance policy covers, we’re ready for the bad news: what’s not covered.
What is not covered by standard homeowners insurance? And when should you consider purchasing additional coverage? let’s take a look.
Most homeowners simply don’t consider natural disasters like floods and earthquakes.2 In fact, only 27% of homeowners say they have flood insurance; however, 90% of natural disasters in the us. uu. involve flooding.3,4 (come on folks! let’s flip these numbers).
Let’s be as clear as we can on this: standard homeowners insurance policies will not cover flood damage to your home.
And no, you can’t call the insurance company while standing knee-deep in water (nice try). you need flood insurance before the waters start to rise. will pay for damage to the structure of your home and anything connected to it.
If you live in a designated flood zone, get flood insurance. now.
earthquakes and hurricanes
Basic homeowners insurance will also not cover earthquake damage, unless it is a house fire caused by an earthquake. therefore, if you live in an earthquake-prone area, you’ll want to consider adding earthquake insurance.
what about hurricanes? We’re glad you asked. If you live in a coastal area affected by hurricanes, the homeowners coverage will not cover wind or flood damage. you’ll need a separate hurricane policy for that.
Homeowners policies generally do not cover sinkholes unless you live in Tennessee or Florida. Insurers in these two states are required to offer optional sinkhole protection. If you live in a state where sinkholes are common, such as Tennessee, Florida, Alabama, Kentucky, Missouri, Texas, and Pennsylvania, you may want to consider this added protection.5
In most cases, your homeowners insurance will not cover damage caused by termites, mold, broken water pipes, and sewage overflows. instead, these are considered part of the regular maintenance of owning your own home. Just like your car insurance won’t pay for oil changes, your homeowners insurance company won’t pay for home maintenance. (welcome to the “joys” of homeownership!)
That’s why it’s important to keep up with your home maintenance. tackle those little problems before they become big and costly. It’s also smart to do things like save an emergency fund and get out of debt so you have extra money to cover things that break (because things always break).
Now let’s talk about the different types of coverage for homeowners.
Choosing the right type of homeowners insurance is crucial. And it’s a balancing act. You want the most protection at the best price, without being underinsured or paying high premiums for coverage you don’t need.
Let’s look at four main types of homeowners insurance.
actual cash value
An Actual Cash Value (ACV) homeowners policy will pay to repair or replace your home and personal belongings, less depreciation. So let’s say someone steals your television. the insurance company will pay what the TV was worth when it was stolen, not when it was new in the box.
Replacement cost coverage offers more protection than actual cash value because it doesn’t consider depreciation. will pay to repair or replace your home up to the original value of the home (within limits). For example, if you have a homeowners coverage limit of $200,000 and it costs $250,000 to rebuild, you’ll pay $50,000. Some replacement cost policies also offer cash value for personal property.
guaranteed replacement cost
Guaranteed replacement cost coverage pays the full replacement cost if your home is destroyed, without regard to depreciation or dwelling coverage limits. so if it costs $250,000 to rebuild, that’s what the insurance company will pay. simple. the only drawback is that it’s more expensive, so you should only get it if you really need it.
extended replacement cost
Another variation of replacement cost coverage is extended replacement cost coverage. This type of home insurance pays for the replacement value of your home up to the coverage limit, plus a percentage of the coverage limit.
This type of replacement coverage is also more expensive. but it can be helpful if you live in an area where construction costs are rising rapidly (which looks to be nationwide in 2021) and your home is at a relatively high risk of damage.
Now that we’ve learned what homeowners insurance does and doesn’t cover, along with the types of coverage, you may be wondering, how much homeowners insurance do I need?
The level of homeowners insurance you need depends on many factors. But one of the biggest pitfalls people make when buying home insurance is not having enough. For example, if a wildfire destroys your home, it would be terrible to discover that your homeowners insurance policy won’t cover the costs. And sadly, an estimated three in five Americans are underinsured when it comes to homeowners insurance.6
This is a good rule of thumb. your homeowners insurance must:
There are some other add-ons or endorsements you can add to your policy if you think you need additional coverage. here are some common examples:
We recommend working with an independent insurance agent who can analyze your situation and find you the right coverage while helping you avoid overpaying for things you don’t need.
so you’re closer to figuring out how much you need, but what about the price? How much does the average homeowner’s insurance policy cost?
Homeowners insurance costs vary widely depending on your situation. Your monthly or yearly premium is based on factors such as the cost of your home, your homeowners insurance claim history, what type of coverage you need, your credit score, whether you live in a hurricane-prone area, and how much your insurance costs. belongings. are worth.
That said, the average annual premium for homeowners insurance is $1,015.7, but again, this number varies widely. And when it comes to things like the cost of flood insurance, you can expect to pay more. In fact, many Americans will see the price of flood insurance increase due to updated rates from the Federal Emergency Management Agency (FEMA).8
Finally, if you’re looking for ways to save on homeowners insurance, keep reading, my friend, keep reading.
While you definitely don’t want to cut corners on something like home insurance, there are a few ways you can save some money.
- bundle!: We’ve all seen the TV ads: “bundle and save!” although it ages, it is true. You can save money on your home insurance by combining it with your auto policy.
- Improve security features: By simply installing things like burglar alarms, smoke detectors, or deadbolts, you can sometimes get a discount.
- beware of claims: If you file too many claims, it could increase your premium. think about how many claims you make, especially small repairs.
- Raise your deductible: You could save some money each month with a lower premium if you increase your deductible. but only do this if you can afford the higher deductible from your savings.
- Check for Better Rates – By not looking around from time to time or asking your insurance agent to check for you, you may be leaving money on the table.
- Pay off your mortgage in full: If you can afford your home, a nice bonus is that your insurance premiums will go down. sweet!
How should you really go about getting homeowners insurance?
One way is to shop around and buy it directly from a carrier. but this can take a long time and still leave you without the best protection in place. With so many different coverages and add-ons, it’s easy to miss one you need or accidentally buy one you don’t.
What if you could delegate this to someone else? you can!
By working with an insurance agent who is part of our Supported Local Provider (ELP) program, you can work with an industry expert to ensure you have the right coverage. our insurance assistants are trusted and can shop for you and get you the best protection at the right price. Plus, they live all over the country, so you can find a professional in your area.
Connect with a professional near you today!