Homeowners insurance is a critical aspect of homeownership, and something most people will deal with for decades. It’s a necessary expense for the vast majority of Americans, as mortgage lenders typically mandate it before finalizing a loan. Even if you own your home outright, maintaining this type of coverage is usually a smart decision.
With the rising cost of insurance, many homeowners find themselves unsure about the specifics of their policies: what they cover, and how much protection they truly need. To demystify the process, we consulted insurance experts to break down the essentials.
What is Home Insurance?
Imagine a fire tearing through your neighborhood. It’s at this moment that you certainly don’t want to be scrambling through policy documents unsure if you’re protected. Learning the basics of home insurance now can prevent a crisis from becoming even more overwhelming.
Home insurance acts as a financial safety net in the event of a major loss, which most homeowners couldn’t afford to cover on their own, according to Ashleigh Trent, personal lines director and co-founder of Tower Street Insurance. A typical policy will cover the repair or replacement of your home and its contents if they’re damaged due to events such as fire, storms, or theft. It can also provide coverage for medical and legal costs if someone is injured on your property.
How Does Home Insurance Work?
Home insurance operates in a straightforward manner: you pay premiums, either monthly or annually, to your insurance company. Bielen Tokarski, president and COO of Mylo explains that in return, when disaster strikes and you report it to the insurance company, “[they] will investigate the incident, inspect the damage and pay for expenses [up to your policy’s limit].” However, you must first pay your deductible before the insurance coverage kicks in.
What Does Home Insurance Cover?
A standard home insurance policy typically includes the following, according to Tokarski:
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Dwelling coverage: Repairs or replaces your home if damaged by a covered event, like fire or storms.
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Personal property coverage: Helps you replace your possessions, such as furniture, electronics, and clothing.
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Other structures coverage: Covers detached structures, including garages, fences, and sheds.
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Loss of use coverage: Pays for temporary housing if you can’t live in your home during repairs.
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Personal liability coverage: Handles legal and medical costs if someone is injured on your property.
What Doesn’t Home Insurance Cover?
While home insurance provides protection against many risks, certain exclusions exist. “Floods, earthquakes, mold, pests, and wear and tear usually aren’t covered,” says Brent Thurman, owner of Keystone Insurance.
You’ll generally need separate insurance for:
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Flood damage: This can be covered through a separate flood insurance policy, often through the National Flood Insurance Program (NFIP).
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High-value belongings: A Valuable Articles Endorsement can cover expensive items like jewelry, art, and collectibles.
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Equipment breakdown: This coverage protects appliances and home systems like your furnace, air conditioner, and refrigerator.
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Earthquake damage: Separate earthquake insurance may be worthwhile if you live in an at-risk area.
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Regular maintenance: This is your responsibility, but a home warranty might help with some repair expenses.
How Much Does Home Insurance Cost?
Home insurance costs fluctuate considerably and depend on various factors, including your location, the value of your home, its construction type, roof age, credit score, and local risks like hurricanes or wildfires. Higher insurance costs are common if you live in a region prone to natural disasters.
Who Needs Home Insurance?
Home insurance is a requirement for homeowners with a mortgage. However, experts, including Trent, recommend maintaining this coverage even after your mortgage is paid off to protect such a significant asset.
How Do You Find Inexpensive Home Insurance?
Industry professionals advise several steps to secure the best home insurance rates:
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Shop around: Work with a broker to compare policies from multiple providers to find the best balance of price and coverage.
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Conduct annual reviews: Don’t automatically renew your policy. Instead, have your broker check for better options before it expires.
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Bundle policies: Combine your home and auto insurance with one company for possible discounts.
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Raise your deductible: A higher deductible often translates to lower monthly premiums.
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Improve your home security: Installing safety features like alarm systems and smoke detectors may qualify you for lower rates.
The Bottom Line
Home insurance shields your most valuable asset, so avoid making a decision based solely on cost. Thurman suggests collaborating with an independent insurance agent, who can help you find the right coverage at a fair price in addition to explaining your policy in simple terms and answer questions you may not have thought to ask.
