Homeowners Insurance 101: What You Need to Know
December 20, 2019
There are many expenses involved with owning a home. Arguably one of the most important, however, is the cost of a solid homeowners insurance policy.
As with most insurance coverage, a homeowners policy will protect you and your family from a variety of catastrophes that could befall your home. But is this type of coverage really necessary, and what should you keep in mind when shopping for a policy?
What is Homeowners Insurance?
Homeowners insurance is a type of property coverage designed to protect the homeowner, mortgage lender, occupants, and even your family’s belongings against a number of unexpected disasters.
This coverage will protect you against damages that may be incurred by natural disasters, fires, theft, and more. Your policy can be as basic or comprehensive as you’d like, allowing you to protect the people and things that matter most in your home.
What Does Homeowners Insurance Cover?
Different homeowners insurance policies will offer different levels of coverage, based on the options that you choose, the type of home that you have, and even the area in which your home is located.
Typically, however, a homeowners policy will cover your home’s structure, other structures on the property (such as attached/detached garages, sheds, decks, and the like), and personal property within the home. You’ll be protected up to your coverage limits against perils such as:
- Wind damage
- Lightning strikes
- Water damage from faulty plumbing or appliances
Most policies will also provide personal liability protection, stepping in to cover situations where someone is injured on your property, as a result of your property, or at the fault of someone in your home. If your dog were to bite someone, for instance, or a guest were to slip and fall in your kitchen, your homeowners insurance would likely step in to cover their medical expenses.
Things Homeowners Insurance May Not Cover
There are many situations where your homeowners insurance may not protect you. It’s important to read your policy documents thoroughly to know how and when you are protected.
With that said, here are a few of the most common situations where homeowners insurance falls short:
- Floods: Standard homeowners insurance policies do not cover flooding, whether from flash floods, spring thawing, or storms. Additional flood coverage is available from most insurers and may even be a requirement from your lender.
- Hurricanes: If you live in a coastal area, you may be expected to purchase hurricane coverage, in addition to the wind coverage your policy already contains.
- Termites and insects: Damage caused to your home by a variety of insects is considered neglect and not covered by homeowners policies.
- Mold: Typically, mold damage is not covered by standard homeowners insurance unless it is attributed to an acute (covered) water damage event, such as a failed appliance.
You may have the option to buy additional coverage for certain hazards, depending on your insurer. However, there are some situations where you simply shouldn’t expect to be covered by your homeowners policy.
It’s also important to note that while personal belongings are covered under your policy, there are limits that might not fully protect you. For instance, you may find that your valuable jewelry coverage is limited to a few thousand dollars; if your home were burglarized and all of your jewelry stolen, would this be enough to compensate you for your loss?
How Much Does Homeowners Insurance Cost?
The amount you’ll pay for homeowners insurance coverage will depend on a number of personal factors. These include the specific details of your home, your location, the level of coverage you prefer, the value of your personal belongings, and the like.
With that said, the average homeowners insurance annual premium across the country is currently $1,288, according to Insurance.com. Some states surpass this average by a lot — for instance, in Florida, the average annual premium is $3,575 -— while other states, like Hawaii, have an average as low as $339.
Anytime you make a claim against your insurance policy, you’ll be expected to pay a small share, called a deductible. With homeowners insurance, this is typically 1% of the value of your home. So if your home is insured for $250,000, your deductible on claims would be $2,500.
Some insurers will allow you to set your own deductible, though a more affordable option may impact your premiums.
Do I Really Need to Buy Homeowners Insurance?
Few of us could afford to rebuild a home and replace belongings following a large fire. Most would even struggle to unexpectedly replace a roof and repair water damage following a massive windstorm. And if a guest in our home was injured, covering their medical bills could be financially devastating.
All of these are excellent reasons to purchase homeowners insurance. With a reasonable price tag and important coverage, this is one expense that all homeowners need to factor into the budget.
There’s one more reason to buy insurance: your mortgage lender probably requires it. Since your lender is actually the one who owns your house until it’s paid off, they want to protect their investment. Therefore, you’d be hard-pressed to find a lender who didn’t mandate homeowners insurance coverage on your home throughout the life of your mortgage.
What If I No Longer Have a Mortgage on My Home?
Even if your home is paid off and there is no mortgage lender mandate, homeowners insurance likely still makes sense for many of the reasons mentioned above.
Unless you are financially capable of accepting the risks involved, you should at least consider minimum coverage. This will protect you and your family if the home were to be damaged or destroyed by an unexpected catastrophe, or your belongings stolen.
If your home will be empty and/or vacant for a period of time, or you plan to rent it out, you can reduce your homeowners insurance policy to only cover the dwelling itself. You may also be able to further reduce your costs by raising your deductible or lowering your coverage limits.
Homeowners insurance is an important part of owning a home, regardless of the added expense. While many mortgage lenders will require you to maintain a valid policy, it’s a wise decision no matter your ownership status… and has the potential to protect your family from disaster.