Anyone who has bought, owned, or is planning on buying a home ought to get at least a basic understanding of homeowner’s insurance and how it works. Read on for a speedy introductory education in homeowner’s insurance.
WHO NEEDS HOMEOWNER’S INSURANCE?
In this case, ‘needs’ is a somewhat subjective term. People who have a mortgage or financing that uses your home or home equity as collateral (like a home equity line of credit) may be obligated as a part of the contract with their lender to purchase and maintain a homeowner’s insurance policy of a certain value. They need a policy.
For people who own their home outright without any liens or contracts dependent upon having a policy, they don’t technically need a homeowner’s insurance policy. However, it’s still likely a very good idea to maintain or purchase a policy, even if you aren’t being compelled to do so.
WHAT’S THE POINT?
Homeowner’s insurance helps to protect your investment in your home. It does this in several ways:
- It covers your personal belongings if something happens to them. Personal belongings protection isn’t necessarily limited to the house, either. Your stuff may be protected when it’s elsewhere, too.
- It covers the house and other structures on the property. If your house, shed, detached garage, fence, or even inground swimming pool is damaged, the insurance may help you get it repaired.
- It helps absorb liability risk. When a guest is in your home, you’re liable for their safety. Say someone tripped and fell on your property and required medical attention. You could be held liable for their expenses, but homeowner’s insurance covers those costs.
Here’s a (not at all comprehensive) list of things that are generally covered by homeowner’s insurance:
- Hail damage
- ‘Regular’ wind damage
- Lightning damage
- Damage done by vehicles (cars, trucks, planes…policies usually don’t discriminate)
- Damage caused by frozen pipes
You’ll Probably Pay a Deductible
If you have to file a claim, you’ll likely have to pay a deductible. How much your deductible is will depend on your specific policy. You can expect deductibles to range from $1,000 to $2,500, though some are higher or lower.
WHAT IS NOT COVERED?
Homeowner’s insurance helps protect your home, but it’s not all-encompassing. There are some things that a regular policy simply won’t cover. Earthquakes and floods are generally not covered by homeowner’s insurance, for example. There several other common exemptions, including:
- Insect or animal infestations
- Normal wear and tear
- Damage caused by government action
- Damage or inhospitability caused by nuclear event
- Liability due to dog bites or attacks
- Wind damage where hurricanes are a common occurrence
In some cases, you may be able to purchase additional policies to make sure you’re protected from some of these problems.
SHOPPING FOR A POLICY
There are some specific numbers you’ll want to keep in mind when shopping for a homeowner’s insurance policy. If you’re required to carry a policy, your lender may have a certain minimum of coverage that you have to meet, so be sure you let agents preparing quotes for you know about your loan. They can contact the lender if you need help figuring out the requirements.
This is how much you’ll have to pay, or your portion, if you file a claim with the insurance company. That means that you’re responsible for that part of the claim. Sometimes, you’ll have to pay that directly to the insurance company and sometimes they’ll just take it out of the amount they pay out on the claim.
You’ll want to make sure your quote is for a policy with a coverage limit that will pay to rebuild your home, the other structures on the property, and replace your personal belongings. If you’re not sure how much you need, ask a few different agents to help you put together an estimate of how much you’d need to essentially get a do-over if something goes horribly wrong.
Liability Coverage Limits
Look into how much a policy will pay out in the event that you’re held liable for an accident on the property.
Check what the limits are when it comes to coverage for ‘other structures. Oftentimes, policies cap the amount that they’ll cover at a certain percentage of the total policy amount. If you’ve got expensive outliers on the property, you’ll want to make sure they’re adequately covered.
When it comes to homeowner’s insurance, it pays to know how your policy works. If you ever have a question, even a hypothetical one, don’t hesitate to contact your agent. It’s their job to make sure you get the right coverage and that you understand what you’re buying.