Homeowners insurance is a type of property insurance that provides coverage for damages to your home and its contents. It also provides liability protection in the event that you are sued for causing damage to someone else’s property. There are several types of homeowners insurance policies available, so it’s important to understand what is covered and what is not before you purchase a policy.
What is Homeowners Insurance?
Homeowners insurance covers the expenses to repair or replace your property and belongings in the case of covered risks like fire, theft, and severe weather. Homeowners insurance is an important tool for ensuring that you may rebuild your home and replace the items inside it should something go wrong. If someone is hurt on your property, homeowners’ insurance can help protect you from paying property damage or rebuilding costs as well as provide assistance for liability risks such as if a guest was injured on your premises.
What does home insurance cover?
The four main types of home insurance coverage are the following:
- Structure of your home
- Your personal belongings will be safe.
- Protect your assets with liability insurance.
Other types of coverage that are available as add-ons include medical payments, scheduled personal property, and sewer backup.
Dwelling coverage
Your homeowner’s policy covers the cost of rebuilding or restoring your home in the event of certain calamities, such as fire, wind, rain, and lightning. The main structure of your house is covered by dwelling coverage.
Other structures coverage
Other structures coverage is designed to protect any detached buildings on your property, such as sheds, barns, and gazebos.
Personal property coverage
If any of your belongings are damaged or go missing, including furniture, electronics, clothing, or collectibles, coverage for personal belongings will reimburse you for their value. In some cases, even trees and plants are covered. This type of coverage also encompasses items that you keep off-site.
Liability protection
Liability insurance protects you from financial losses if you are found liable in a court of law. Unless they are excluded, this coverage also covers injuries caused by your family members, as well as your pets. Depending on the terms of your policy, liability protection can include both court awards and costs.
Additional living expenses
Is a type of homeowners insurance that helps pay for increased living expenses if your home is uninhabitable due to a covered disaster.
Keep in mind that ALE only covers extra expenses that are over and above your normal living expenses.
Additionally, most policies have a limit on how much they will pay out for ALE, so it’s important to know what that limit is before you purchase a policy.
If you’re considering purchasing homeowners insurance, be sure to ask your agent about ALE coverage and whether it makes sense for your situation.
What does homeowners insurance not cover?
Most homeowners insurance policies exclude certain types of damage, such as flooding or earthquake damage. It’s important to understand what your policy covers and excludes so that you can plan accordingly.
Some common exclusions from homeowners insurance policies include:
- Flooding: Many policies exclude flood damage, so it’s important to purchase separate flood insurance if you live in an area at risk of flooding.
- Earthquake damage: Like flood damage, earthquake damage is usually excluded from standard homeowners insurance policies. If you live in an area at risk of earthquakes, you’ll need to purchase separate earthquake insurance.
- Sinkholes: Sinkhole damage is often excluded from homeowners insurance policies. If you live in an area at risk of sinkholes, you may need to purchase separate sinkhole insurance.
- Mold: Many policies exclude mold damage, so it’s important to be familiar with your policy’s mold exclusion.
- Termites and other pests: Damage caused by termites and other pests are often excluded from homeowners insurance policies.
How much homeowner’s insurance do you need?
Your home insurance agent or company should be able to assist you with the cost of replacement.
For your personal belongings, you’ll usually want coverage limits that are at least 50% of the value of your home coverage. Your insurer may set this automatically. However, if you feel the limit isn’t adequate, you can decrease it or purchase extra coverage. To estimate how much your belongings will cost, make a home inventory. These assets could be savings, investments, or other accounts you may have
How much does homeowners’ insurance cost?
According to an Insurance Romeo analysis, the average annual cost of homeowner insurance is $1,784. However, your rate can be considerably higher or lower depending on your location and the amount of coverage you purchase. In most states, your credit score may also play a role.
If your homeowners insurance premium appears to be excessive, there are several ways to save money. Many carriers provide a discount for combining home and auto coverage. You may also receive a lower rate if you have certain safety features, such as burglar alarms and deadbolt locks. It’s also always a good idea to shop around and compare homeowners insurance rates to ensure you’re getting the best deal possible.
How to Compare Home Insurance Companies
Here’s a search and shopping checklist to use when you’re looking for an insurance carrier.
1. Find and compare the prices of different insurance companies in your state
Home insurance is an important investment, so you want to be sure you pick a reputable company. A great starting point is visiting your state’s Department of Insurance site. They have ratings for every home insurer licensed in your state, plus any complaints customers have made against them. You can also find the average cost of home insurance across different counties and cities.
2. Make sure the company is healthy.
Check out a home insurance company’s rating at the top credit agencies’ websites (such as A.M. Best, Moody’s, J.D. Power, Standard & Poor’s) and those of the National Association of Insurance Commissioners and Weiss Research to see whether it is reputable. These sites track consumer complaints against firms as well as client feedback on a variety of topics such as claim payment procedures and claims processing. These websites also evaluate a house insurance company’s financial health in some cases to determine if they can pay claims.
3. Look at the response to claims.
If you suffer a substantial loss and have to pay for repairs out-of-pocket, waiting for your insurance company to reimburse you could put your family in a difficult financial situation. Many insurers are now outsourcing core functions, including claims processing.
4. The Satisfaction of Current Policyholders
Every firm claims to have an outstanding claims service. However, cut through the jargon by getting your agent or a company representative from the insurer’s retention rate—that is, what proportion of policyholders renew each year. Many businesses provide retention rates ranging from 80% to 90 percent. You may also discover satisfaction data in annual reports, online reviews, and personalized testimonials from people you believe in.
5. Get a variety of quotations
How many quotations should you ask for? However, request a price from insurers with whom you have a current relationship before obtaining quotes from other businesses. As previously said, because you’re an existing customer in many cases, a carrier who is already providing service to your car, boat, etc., may be able to offer cheaper rates.
There are also various discounts available to seniors and those who work from home. The idea is that both categories are more likely to be on-premises—making them less vulnerable to burglary.
6. Look beyond the price to see what’s really valuable.
When choosing a Home Insurance policy, don’t just look at the annual premium. According to Bank, “No two insurers use the same policy forms and endorsements, and policy wording can be very different.” This means that even when you think you’re comparing apples to apples in regard to price, there are usually more factors at play. Make sure to compare coverages and limits before making your final decision.
7. Speak to a real, live person–not a computer or automated system.
Stauffer recommends contacting the insurance companies directly or speaking with an independent agent who deals with several firms rather than a “captive” insurance representative or financial advisor who works for just one home insurance carrier. However, keep in mind that “a broker licensed to sell for multiple businesses commonly adds their own costs to premiums and policy renewals. This may set you back hundreds of dollars each year,” he cautions.
The bank suggests that consumers should inquire about various deductible options to decide whether it would be more beneficial to pay a higher deductible and self-insure.
FAQ
Does homeowners insurance cover water damage?
Homeowners insurance generally covers water damage, but there may be exceptions. For instance, if the water damage is the result of a flood, it may not be covered.
What is the difference between homeowners insurance and property insurance?
Home insurance protects your house from damage, both natural and man-made. Home insurance also called homeowner’s insurance, is a type of property insurance that offers protection against structural damages to your home.
