Your Homeowners Insurance Questions Answered
A primary residence may be the biggest purchase you make in life. And for many of us, it will be our greatest financial asset.
So how do you protect it? You choose the right homeowners insurance and enjoy your investment knowing it’s protected.
We’ve researched everything there is to know about homeowners insurance, and these are the best companies for you and your home.
Still have questions, keep reading to know more!
According to the National Association of Realtors’ 2018 Q2 Housing Opportunity and Market Experience Survey, 87% of the Americans surveyed said owning a home was part of their American Dream. Homeowners insurance gives you peace of mind about the safety of your home, keeping your American dream alive.
In this article, we try to answer some of the most commonly asked questions related to homeowners insurance.
The Main Question: What Is Homeowners Insurance?
Homeowner’s insurance is a type of property insurance that insures against damages or losses to your home and the personal possessions housed within it.
It also provides liability coverage against accidents or injuries that occur in your house or on your property.
Similar to other policies like health and automobile, homeowners insurance requires you to purchase a policy for which you will pay an annual premium in monthly installments.
Premiums for this type of insurance are based on the value of your home and how much property and liability coverage you buy.
What Are The Different Types Of Policies?
There are eight types of homeowners insurance policies, from basic coverage (HO-1) to the most common policy (HO-3) to the one that covers the most perils (HO-5) to policies for condos, mobile homes, and renters.
What Are The Different Types Of Coverages?
There are three types of homeowners insurance coverage:
1 – Actual Cash Value
Depreciated deductions applied to replace damaged or lost property from the cash value of your home at the time of needed repairs or loss
2 – Replacement Cost
No depreciated deducted applied but coverage has a maximum dollar limit
3 – Guaranteed Replacement Cost
No depreciation deducted and no maximum limit
Note: Actual cash value is the least expensive coverage but also provides the least amount of coverage (depreciation included).
Keep in mind that the types of coverage available may vary by state and insurance carrier.
Do You Need Homeowners Insurance?
If you have paid off your home and now own it completely, you are not required to have homeowners insurance.
However, most people do buy coverage in case of a natural disaster or other risks that could cause damage to or loss of your home.
If you have a mortgage, your lender will require proof of homeowner’s insurance before closing on the sale.
If you are buying a condo, your housing association (HOA) may require you to purchase insurance regardless of whether or not you have a mortgage.
Some townhouse communities have group insurance coverage, so it’s worth looking into future HOAs or community rules so you understand what you may be responsible for.
How Much Does It Cost, Typically?
In the United States, the national average homeowners insurance is approximately $1,100.
Where you live, including your city and state, can affect your premium.
Other factors that insurance carriers use to determine premiums include:
- Desired coverage limits, deductibles, and endorsements
- Your credit score and history
- Your claims history
- The age of the home
- New roof on home
- Construction quality
- Preventative measures: smoke detectors, home security system, landscaping
- Distance from a fire station
- Flood risk
- Pools, hot tubs, and trampolines
How Much Homeowners Insurance Do I (Really) Need?
To figure out how much homeowners insurance you need, figure out what the full replacement value of your home is and not the market value.
The full replacement amount is how much it would cost to rebuild your home using the same quality of materials whereas market value is based on the value of your home after all depreciation is deducted.
Let’s say rebuilding your home will cost $150,000.
You then add in personal property coverage, which many industry experts recommend that you purchase somewhere between 50% and 75% of the total dwelling protection amount.
So, say you go with 50%. That translates to $75,000 in personal property value.
$150,000 + $75,000 = $225,000 in total coverage.
What is Covered By My Policy?
Three primary things are covered by your homeowner’s insurance:
- Dwelling protection (your home)
- Your Personal Possessions (on your property)
- Liability Coverage
Let’s go through each one.
This portion of your insurance policy covers damage to your home and any attached structures (as defined by your insurance carrier) caused by the following 11 perils:
- Fire and smoke including wildfires
- Lightning strikes
- Water damage
- The weight of ice, snow or sleet
- Damage from an aircraft, car, or another vehicle
- Falling objects
Some policies may offer “other structures” protection that covers stand-alone structures on your property, like a carport, a fence, or storage shed.
Also, some policies offer additional living expense coverage for when you have to relocate temporarily because your home is deemed unlivable. This coverage often will cover relocation, rent, and even meal expenditures.
Personal Property Damage
This part of your policy covers the replacement or repair of any of your personal possessions which may have been stolen or damaged due to one of the eleven covered peril.
Personal property can include but is not limited to your kitchen goods, bedding, furniture, and appliances.
You can purchase additional personal property damage coverage for newly purchased items brought into your home.
This can include more coverage for:
- Fine Art
- Treasured Book Collection
A friend falls on your front porch and breaks her leg. You are found at fault.
That’s what this part of your policy covers: liability coverage in case of an accident or injury that takes place in your home or on your property.
What Is Not Covered?
Under a standard policy (HO-3), the following types of perils are not covered, including:
- Water Damage
- Nuclear Damage
- Act of War
- Pets (certain breeds)
- Future Belongings and Assets
- Identity Theft
You can purchase earthquake insurance as an addendum or endorsement to your policy. In California, there is no fee associated with adding this option to your policy.
Water Damage Endorsement
Most policies do not cover water damage caused by a drain back-up or overflow in your home. Water damage caused by a hurricane is also not covered unless you have hurricane coverage. If you own an older home, you may want to opt for this endorsement.
Note: Homeowners insurance usually does cover water damage in your home as a result of the roof or your house sustaining damage, during a hurricane, and therefore allows rain to fall inside your home.
Flood Insurance (Including Mudflows)
This type of insurance must be purchased as its own policy that is a separate policy and is only available through the National Flood Insurance Program under FEMA (Federal Emergency Management Agency).
If you have live near the coast, by levees, or on a floodplain, we highly recommend you get flood insurance.
Personal Injury Liability
This protects you as the homeowner from lawsuits resulting from a non-physical injury like defamation of character or slander. It is not included in a standard homeowners insurance policy but can be purchased separately.
Most policies will cover a standard amount, usually @ $1,000 if your boat is stolen or damaged on your property.
Check with your insurance agent on what else is covered in your home or on your property, and what the coverage amount(s) are.
Are There Any Discounts Available On Homeowners Insurance Premiums?
There are a number of ways to save money on your homeowner’s insurance premium including discounts.
Standard Discounts Include:
- Multi-Policy – purchase auto and homeowners insurance from the same insurance carrier
- New home construction – built based on modern standards and bylaws
- Home Alert Protection – install home monitoring systems including fire, smoke or security alarms
- Pay in Full – pay 12-month premium upfront
- Roofing Discounts –made from impact-resistant materials
- Claims-Free – based on your history being claims free for a certain number of years
You can also save money on your homeowner’s insurance premium by taking a higher deductible. Before doing this, make sure you have a way of covering the higher deductible first, i.e., savings account, etc.
Also, check with your insurance agent for the full list of possible discounts that may be available to you.
What Does Endorsement Mean On A Homeowner’s Insurance Policy?
An insurance endorsement is like a rider on your health insurance policy. It is a modification to your base policy that changes the term or coverage.
Some endorsements may decrease or increase your overall premium.
Standard Homeowner’s Insurance Endorsements:
- Personal Property Replacement Cost
- Inflation Guard Endorsement
- Home Business
It’s a lot of material to cover. We hope we have answered at least a few of your questions.
As always, we recommend that you discuss a homeowner’s insurance coverage with your agent before purchasing any policy.