Homeowners insurance is a financial protection policy that pays a lump sum if your house is damaged or destroyed by fire, weather, theft or other disasters.
Homeowners insurance is an important purchase for many people. There are two major reasons to buy homeowners insurance:
Protect your assets
Homeowners insurance covers the structure of your home and your personal property, as well as your personal legal responsibility (or liability) for injuries to others or their property while they’re on your property.
Satisfy your mortgage lender
Most mortgage lenders require you to have insurance as long as you have a mortgage and to list them as the mortgagee on the policy. If you let your insurance lapse, your mortgage lender will likely have your home insured. Compared to a policy you would buy on your own, the premium might be much higher and the coverage will be limited to damage to the structure of your home. The lender can require you to pay this higher premium until you get your own homeowners insurance again.
FAQ & Questions
Questions? We’ve got you covered.
How much coverage do I need?
The better your coverage, the less you will have to pay out of your own pocket if disaster strikes. In some cases, your lender decides how much coverage you need and may require you to buy a policy that covers at least the amount of the mortgage. It is important to note that the amount of coverage you buy for your house, contents and personal property will affect the price you pay.
Are there any additional coverages I should consider?
Extra Contents Coverage
Remember that most of the coverages are a flat percentage of the amount of insurance on the home itself. For example: contents coverage is 50% of the insurance on the home itself. If you insure your home for $100,000, the contents coverage will be $50,000. For a minimal extra charge, you can increase the coverage on your contents without increasing the amount of insurance on the home itself.
Most companies offer "Guaranteed Replacement Cost Coverage" for an additional premium. Ask your agent if this is available and to explain the advantages of having this broader coverage. The most important coverage that is usually offered is full replacement cost coverage on your roof with no deduction for depreciation.
Personal Property Extensions of coverage
Another good example concerns special limits on certain types of personal property. For instance, most policies limit their coverage for the theft of furs or jewelry to $500.The limit for firearms or computers is probably $1000. Numerous other items are also typically limited to $500 or $1000 since the homeowners program is designed to fit the coverage needs of the average insured. It is the consumer's responsibility to review the limitations placed on certain types of property. If needed, increase the coverage of one area or another by adding a "Scheduled Personal Property Endorsement" to the basic policy.
You can also purchase additional liability coverage and medical payments coverage for a nominal premium.
The most important exclusion is flood, as many people have learned to their great misfortune. If you need flood coverage, any property/casualty insurance agent can help you get it. If you live in a flood-prone community, don't risk going without flood insurance. See your broker about flood coverage.
No standard insurance policy, including the homeowners policy, covers catastrophic damage that can be caused by an earthquake. For an additional premium, companies offer an earthquake endorsement with your homeowners policy that will protect you in case your home suffers earthquake damage. In some areas, this coverage is typically inexpensive and should be considered. For instance, the New Madrid fault runs through the Midwest United States, an area not perceived as having earthquakes occurring frequently.
What's not covered in my policy?
- Flood — water damage from leaky pipes, siding and roofs is likely covered, but ground-water damage from rain, run-off or snow-melt is not.
- Earthquakes — damage from earth-movement is more common than you think and may not be included in your policy.
- Mold — homeowners policies often exclude covering the cost of damage from mold.
- Infestations — damage caused by termites, rats or other infestations are not typically covered.
- Home Office — if you store business inventory or supplies at home, it is not likely covered. Failing to disclose a home-business to your insurer could lead to a cancelled policy. Be sure to discuss any use of your home for business and secure appropriate coverage.
- Pets — your policy may exclude liability coverage for certain breeds of dogs or exotic pets.
- Jewelry, art, or heirlooms — a typical policy includes limited coverage for valuables. These limits could fail to fully cover an expensive piece of jewelry, antiques or artwork.
- Detached buildings or pool — a shed with lawn equipment is likely covered, however, an in-ground pool or a detached garage with classic cars may require an additional coverage.
Does my policy cover earthquakes, wildfires or other disasters? Do I need a flood insurance policy?
Floods and earthquakes are not covered by a typical homeowners policy. To cover your home for these risks you'll need to purchase a specific named-risk policy. Recovering from a catastrophic loss requires preparation.
What affects the cost of homeowners insurance?
Like auto insurance, the cost of homeowners coverage depends largely on where you live. Crime rates vary from community to community and so does the access to your local fire department, police department, and water supply. These factors help determine the protection class. Along with the value of your house, the following factors determine the rates you pay for homeowner's coverage.
- Type of Construction: Frame houses usually cost more to insure than brick.
- Age of House: New homes may qualify for discounts. Older homes may not qualify for preferred programs. Insurers may require older homes to have updated heating, plumbing, wiring and roofing.
- Local Fire Protection: Your home’s distance from a fire hydrant and the quality of your local fire department determine your fire protection class.
- Amount of Coverage: The amount of coverage you buy for your house, contents and personal liability will affect the price you pay.
- Deductible Amount: Your choice of a higher deductible will reduce the price for homeowners insurance.
- Discounts: Insurers offer lower prices for such things as insuring your home and car with the same company and installing deadbolt locks or alarm systems.
Can I get a discount for home security upgrades?
Many insurers offer a discount if you have a burglar alarm, deadbolts on doors or other security devices for windows. But a new wood-burning fireplace or wooden deck can have the opposite effect.
Questions to ask.
- What has changed in my home? Did the number of people (and belongings) increase or decrease? Have I made any major purchases?
- Do I have a home inventory?
Tips & Tools
Be prepared before you buy.
The deductible is the amount you have to pay out of pocket on each claim and applies only to coverage on your house and personal property. Make sure when choosing a policy that you are comfortable paying the deductible if you make a claim. Remember, a policy with a $100 deductible will cost more than one with a $250 deductible. Higher deductibles may be available at a reduced price.
Replacement Cost or Actual Cash Value?
You have the option to choose to insure your home and belongings for either replacement cost or actual cash value. Replacement cost is the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality, without deducting for depreciation. It is important to insure your home for at least 80 percent of its replacement value. Actual cash value is the amount it would take to repair or replace damage to your home after depreciation.
Shop Around Before You Buy
You are not required to purchase insurance from the company your lender recommends. There are a number of unbiased sources available to find out what different insurers charge for identical products and services, including your state insurance department, consumer publications and your public library.
Ask Your Agent About Discounts
In some states, insurers offer lower prices for such things as insuring your home and car with the same company, installing deadbolt locks or alarm systems or replacing the roof.
Basic Coverages Available
Whether you own or rent, there are different packages of home insurance offered to protect your home and belongings. Each package protects against a specified number of events that cause damage to property. Three examples are fire, windstorm and theft. In addition, each package policy usually contains four additional types of coverage: property damage, additional living expenses, personal liability and medical payments.
Read Your Policy Carefully
You should be aware that a home insurance policy is a legal contract. It is written so that your rights and responsibilities as well as those of the insurance company are clearly stated. When you purchase home insurance, you will receive a policy. You should read that policy and make certain you understand its contents. Keep your policy in a safe place and know the name of your insurer.
Review Your Home Insurance Needs Every Year
Check with your insurance agent at least once a year to make sure your policy provides adequate coverage. The addition of a room, new insulation or remodeling add value to your home and therefore may increase replacement cost.
Create Home Inventory
A home inventory can be invaluable when deciding how much insurance coverage fits your life situation and makes sure you are adequately protected should you need to file a claim.
- Group your possessions into logical categories, i.e., by hobby, by room in your home, etc.
- Your list should include celebration purchases like jewelry and art, as well as everyday leisure items such as televisions and guitars.
- Don't forget items you use rarely such as holiday decorations, sports equipment, tools, etc.
- Pull together copies of original sales receipts and/or appraisal documents. Also note model and serial numbers.
- Carefully photograph or videotape each item and document a brief description, including age, purchase price and estimated current value.
- Store your home inventory and related documents in a safe, easily accessible place online, on your computer or in a fire-proof box or safe deposit box. Consider sharing a copy with friends, relatives and your insurance provider.
Flood Is Not Covered
Water damage from a home's plumbing or a leak in your roof is typically covered. However flood damage or destruction from ground-water or rain runoff and snow-melt is not. Flooding is a risk homeowners face everywhere in the U.S. and you must get additional coverage through The National Flood Insurance Program (NFIP) or private insurers in addition to your standard homeowners policy. According to Kiplingers, the average cost of flood insurance is about $700 a year.
Types of Coverage in a Homeowners Policy
The following are examples of the types of coverage that are usually listed in your insurance policy.
Damage to House
Covers damage to the house. The face amount of the policy (for example $100,000) is the most you will receive if your house is totally destroyed.
Covers damage to other structures or buildings, such as a detached garage, work shed, or fencing.
Covers damage to, or loss of personal property. Personal property includes household contents and other personal belongings used, owned or worn by you and your family.
Additional Living Expense
Covers additional living expenses when incurred. This means that the policy covers the necessary living expenses up to the stated limit, incurred by the insured to continue, as nearly as possible, the normal standard of living when the house cannot be occupied due to a covered loss.
Comprehensive Personal Liability
Covers personal liability. This coverage protects you against claims arising from accidents to others on property that you own or rent. With a few exceptions, such as auto or boating accidents, it is an all purpose liability policy that follows you wherever you go.
Covers medical expenses. Coverage is limited to an amount per person and per accident for injuries occurring on your premises to persons other than an insured, or elsewhere, if caused by you, a member of your family, or your pets. An important feature of this coverage is that payment is made regardless of legal liability.
Need help navigating homeowners insurance?
Homeowners Insurance Buyer’s Guide
NAIC’s Homeowners Insurance Buyer’s Guide provides you information to make better informed decisions around purchasing homeowners insurance. Download the Homeowners Insurance Buyer’s Guide to get a better understanding of homeowners insurance products.