Home insurance provides financial protection for people and their homes in cases of an accident, incident, or catastrophe. It covers property damage (inside and outside) and damage to the home’s contents. However, some policies also cover personal injury, living expenses, and even loss of income for certain circumstances.
Mortgage companies require homeowner insurance as a condition to get approved for a mortgage. If you own a home, you will need this type of coverage, especially if you have a mortgage on your house. The policies offered by insurance companies vary and often are customizable to meet the policyholder’s individual specific needs.
Types Of Homeowner Insurance Policies
Many different types of homeowners insurance policies exist on the market. In general, most major companies offer similar types of standard and optional coverage options. Companies allow you to choose from their diverse options to find the one that best meets your unique situation and create a customized policy.
The most basic type of coverage is Dwelling Coverage, which covers the physical structure of your home, such as the walls and the roof. Some policies will also cover structures attached to your home, such as an attached garage. Dwelling Coverage will pay for damages with causes such as fire and smoke, lightning, wind, hail, water damage (not from floods), theft, and vandalism. It does not usually cover floods or earthquakes. Those types of natural disasters require additional specialized coverage.
Your policy may also provide Other Structures coverage which extends your dwelling coverage to other structures on your property. These are structures that are not attached to your home but could still suffer damage, such as an unattached garage, deck, patio, fence, etc. Adding this option to your standard policy will most likely increase your premium.
Many people have children or other family members living in the house. If that situation applies to you, you will also want to ensure that your policy has Liability Insurance protection. This coverage type helps protect you if someone sues you or a family member for accidental injury or property damage (i.e., if someone is injured while visiting your home). You may also have Guest Medical Protection on your policy, which covers medical expenses if one of your guests is accidentally injured while visiting your home.
Personal Property Insurance extends your coverage to the items inside your house, such as furniture or electronics. Many companies include this coverage as part of their standard homeowner’s insurance policies. You can often choose whether you want Actual Cash Value or Replacement Cost coverage. Both types of coverage provide money to replace damaged items. Replacement Cost coverage typically makes your premium slightly higher. However, choosing Replacement Cost coverage will give you enough reimbursement to purchase new belongings of the same kind and quality.
Most policies also include Loss of Use coverage, which helps pay for additional living expenses if you cannot stay in your home during repairs from a catastrophic event.
Optional Coverage Types
In addition to what is covered by your standard policy, you may also want to add different types of coverage to provide you with further protection.
Some homeowners choose to purchase an additional Umbrella Insurance policy, which provides more reimbursement coverage for losses that exceed the amount provided by your regular policy. For example, if you have a significant insurance claim (such as a fire on your property that damages your neighbor’s property) or a lawsuit, an umbrella insurance policy may help.
If your house has a sump pump in your basement, you may want to add a Water Backup option to your policy. This option will protect you financially if the sump pump backs up and floods the house with water or sewage.
Personal Injury Insurance
Personal Injury insurance safeguards you against several uncommon situations that, if they occur, could prove quite costly. For example, this coverage would protect you against lawsuits for slander, personal lawsuits against you, wrongful eviction, or false arrest or imprisonment.
Flood Insurance is critical for protecting your property if you live in an area that may experience significant flooding. Most standard homeowners policies will not include coverage for a flooding event. If your community participates in the National Flood Insurance Program (NFIP), you can purchase coverage using that program.
As with flooding, certain areas are more prone to earthquakes. Therefore, Earthquake Insurance provides coverage for these events that regular homeowner’s policies will not cover. If your state has a higher risk for earthquake damage, you will want to consider adding this option to your premium.
What is Covered By a Home Insurance Policy?
To summarize, most standard homeowners policies will repair or replace your home and the contents within your home if something catastrophic or accidental happens to cause damage. Most typical events include smoke damage, water damage (though not from floods), weather-related damage (lightning, hail, wind damage), and fire damage.
You can count on the fact that your policy will cover the structure of your home for these events. In addition, they typically will repair or replace the major systems in your home (like heating or cooling), your furniture and appliances, and even your personal belongings.
Suppose your home has outbuildings that are not attached (i.e., a shed or unattached garage), a pool, barn, or even a large playset. In these cases, your policy may include these items, but it usually requires an add-on of coverage to your basic premium.
Finally, if your house incurs so much damage that you cannot live in it while contractors complete the repairs, your policy should cover your living expenses. Examples of covered expenses may include hotel or lodging costs and other costs associated with the loss of use of your property.
How to Choose the Right Home Insurance Policy for You
When comparing quotes and deciding on a policy, you will want to ensure that the one you select meets all of your needs and doesn’t leave you uninsured if you need to file a claim.
To help make sure that you are on the right track, ask yourself some critical questions about your property and the contents it has inside of it as you compare your options. For example, if you outright own your home and do not hold a mortgage, you may feel ok with purchasing a standard policy that only covers the home’s structure. However, if you hold a mortgage, your lender will most likely require you to possess a minimum amount of dwelling and liability coverage.
Consider how much it would cost to replace the possessions in your home if a fire or tornado destroys your house. If you don’t have enough savings to reasonably replace these items, you might consider adding umbrella coverage or making sure your policy includes loss of use coverage.
Home Insurance For Expensive Houses
If you live in an expensive home but do not choose to insure it fully, your premium will significantly increase. In this case, you should weigh the costs of paying a bit extra to select a policy that will fully cover your home versus paying the penalty on your premium because you do not have enough coverage.
Finally, you will also want to ask your agent if you require extra coverage for the number of people living in your home (i.e., if more than one family lives there). You will also want to ask whether you need protection for extra features such as swimming pools, jacuzzi, elevators, or other specialized items.
Benefits of Having Homeowner Insurance
If you’re still not convinced that home insurance is a “must-have” if you own a house, consider these realistic situations and how much financial hardship each one would cause if uninsured or underinsured.
Everyone thinks of the policies that protect them if the house catches on fire or a hail storm damages the roof. However, in reality, there are so many other types of circumstances where the right policy will prevent you from financial hardship or even going bankrupt.
Imagine that you are hosting guests at your home one evening, and one of them slips on your swimming pool deck and is injured. Later, the injured individual decides to sue you for the medical bills incurred by the slip and fall on your property. Without proper homeowner’s insurance, you would get caught up in a lengthy and expensive lawsuit.
An Example of Home Insurance Damage
Suppose your house has a sump pump, and it leaks, causing water and sewage to spill out of the guest bathroom and flood the entire first floor of your house. In that case, you could face damages from repairing it and significant expenses from living somewhere else while the repairs occur. Your homeowner’s policy could cover you for both of these expenses.
A strong thunderstorm goes through the area, and a tree from your yard falls onto your neighbor’s house or car. Depending on the circumstances, your neighbor could hold you liable for the costs associated with the damage. Having the proper liability coverage will protect you in this instance and possibly prevent you from paying your neighbor for the full replacement cost of the vehicle.
How Much Does Homeowner Insurance Cost?
As previously mentioned, the cost of your homeowner premium will vary depending on the value of your house and any additional coverage that your policy requires. The costs will also vary by state and even where your house is located in a state.
The current average cost of dwelling coverage for a $250,000 house in the United States is approximately $1,400 a year. Still, policies can go up to $2,500 or more depending on your location, house value, and coverage selected. For example, if you live in a part of the country known for having a lot of tornados, your policy could be significantly higher than the national average.
Factors in Home Insurance Cost
The cost of a home insurance policy will vary depending on several factors. Some of these factors include the value of your home and its contents, the amount of coverage you wish to purchase, and any optional coverage items that you want to add to your policy.
To find the best rates for your policy, you will want to compare quotes from various companies. Most major insurance companies have a quote tool on their website that you can use to estimate how much a policy would cost. You usually need to add a few details about yourself, your home, and the coverage you want, and you can receive an instant quote.
If you prefer to speak to someone personally about a quote or your specific requirements, you can often find a local agent to meet with face-to-face. Many companies also have an online chat option that you can use to speak virtually with an agent from the website. This process will prove more time-intensive than receiving online quotes but will allow you to thoroughly discuss your needs and receive immediate answers to any questions.
Companies Providing Home Insurance
Once you begin searching for the right home insurance policy, many major companies offer products that meet your needs. An example of a company that insures a home is Progressive.
If you visit the websites of these companies, you can easily receive and compare quotes for similar coverage between multiple companies. Many other websites also exist that allow you to compare rates from multiple companies simultaneously by only entering your information once.
Once you’ve done your research, compared quotes, and reviewed all the fine print, you’ll be able to select the policy that provides you the best coverage for your home and helps you feel most protected if something catastrophic occurs.