Buying a home is a big purchase, and for many of us we want to make sure our purchase is protected. Homeowners insurance (also called home insurance) provides financial protection for your home and personal belongings. Homeowners insurance is made up of coverages that may help pay to repair or replace your home and belongings if they are damaged in a fire or theft. It can also help cover costs if you accidentally damage another person’s property or if a visitor is injured at your home. For owners that have a mortgage loan, homeowners insurance is usually mandated by the mortgage loan company. For those buying homes without a mortgage, homeowners insurance is not required. Regardless of whether it’s required or not, insurance on your home is important and something that shouldn’t be skipped over.
Homeowners Insurance plans are not all the same, but for the most part standard policies tend to cover the same incidents (or perils) on an insured property:
- interior damage
- exterior damage
- loss or damage of personal assets/belongings
- injury that occurs while on the property
It’s important to note that homeowners insurance doesn’t generally cover repair work on appliances or replacing items in your home if they break or no longer work. Homeowners insurance is for when disaster strikes. Perils that are generally covered by standard plans include:
- Damage from a car, vehicle or aircraft
- Falling objects
- Fire and smoke
- Lightning strikes
- Riots or civil commotion
- Vandalism and malicious mischief
- Volcanic eruptions
- Water damage (from within the home only)
- Weight of ice, snow, and sleet
- Windstorms and hail
Homeowners insurance won’t cover you if your fridge stops working. But if a tree falls on your house and takes out your kitchen and appliances, then a homeowners insurance policy would likely cover the replacement of those appliances as well as the reconstruction of the kitchen. Each policy is different, and some homeowners choose to have more coverage while others choose less. Determining the coverage that best fits your needs can be a process.
What Coverage Should I Have?
Your home is likely one of your biggest assets, if not the biggest, so protecting it (and yourself) is important. It’s reported that about 60% of homeowners are underinsured, which can be an issue should a homeowner need to use his/her home insurance. When you look for a homeowners insurance policy, the rule of thumb is to choose a policy that has enough coverage to rebuild your home, replace your belongings, cover injuries or damages that happen on your property, and reimburse your living expenses when not living in your home due to damage.
Standard policies generally have four types of coverage: dwelling, personal property, liability and additional living expenses. Dwelling coverage helps pay to rebuild or repair your home and any attached structures (garage, deck, front porch, etc.) that may be damaged in a covered incident. Dwelling coverage equal to the cost of your home’s replacement (the cost to rebuild it) is generally recommended.
Personal property coverage covers the cost to replace all your belongings. This amount should cover the cost to replace the contents of your home – appliances, clothes, furniture, electronics, the food in your kitchen and any other items in your home that could be destroyed in an incident. If you have priceless items or valuables worth a lot of money, you may need an additional policy to cover those items separately.
Liability coverage covers you when someone is hurt on your property. Common liability claims include:
- dog bites
- home accidents
- falling trees (generally if a tree on your property falls on someone, a car or another home)
- intoxicated guests (for those guests that get a little too jolly and hurt themselves on your property)
- injured domestic workers (house keepers, gardeners, or anyone else you may hire to work in your home or on your property)
It’s generally recommended to have as much liability coverage as you can afford.
Additional living expenses coverage helps cover you should you need to move out of your home due to a covered incident. It acts as an almost emergency fund, covering things such as a hotel stay or a rental home, and even eating at restaurants. For some policies, this type of coverage may also reimburse your rent, furniture, store your household items, and even cover the cost to board a pet. When it comes to additional living expenses coverage, calculating how much you may need should be based on the size of your family – the larger your family, the more you’re likely to spend on your overall living expenses.
Do I Need Additional Coverage?
Homeowners insurance policies do not generally cover everything related to your home. For many owners, especially those living in areas prone to weather incidents or natural disasters, additional policies are needed to fully ensure a property is covered.
These can include (but are not limited to):
- Catastrophe Insurance
- Hazard Insurance
- Flood Insurance
- Earthquake Insurance
- Lender-Required Flood Insurance
- Windstorm Insurance
- Crop-Hail Insurance
- Hurricane Deductible
Homeowners insurance is an important part of being a property owner, and knowing you’re covered in case of emergency can help reduce stress in trying times. There are many companies that offer home insurance, so finding the perfect policy for you and your home is just a matter of researching what’s available in your area.