If you own your own home, there’s a good chance it is your biggest and most important investment. Therefore, it makes sense to do everything you can to protect it—including carrying homeowners insurance.
Whether you are looking to purchase homeowners insurance for the first time or you’re in the market for a better deal than your current policy, you’ll find key information below to help you make the right decision for your situation.
Nobody likes to buy things they hope they’ll never use. (Except for some of the people who build shelters and buy gallons of bottled water to prepare for the end of the world—some of those folks seem to get a kick out of that.)
So, why should you invest in homeowners insurance in the first place?
The most likely answer is that you’re required to. Of course, homeowners insurance is not usually required by law in most states, as is the case with car insurance. However, if you have a mortgage on your home, then your lender will likely require you to purchase homeowners insurance.
Beyond the requirement, a home insurance policy is a good investment because it protects both your home and the people living in it! It gives you peace of mind when things are going well, and it makes sure you’ll have the help and support you need if something does go wrong.
The first thing covered by your homeowners insurance policy is your actual home—whether that’s a house or a cabin or a condo and so on. And that coverage includes all the major pieces of your home, including plumbing, electrical, the roof, and more. You’ll also be covered on any additional structures that are part of your property such as fences, a garage, or even a fancy “she shed.”
That includes your furniture, clothes, jewelry and other valuables, electronics, and more. Better yet, most policies will cover your items even if they are lost or damaged away from your home. Meaning, if your laptop is included in your policy and it gets stolen from your car at the grocery store—you’re likely covered.
so you are protected against lawsuits from people who are injured or incur damages on your property. Note: this typically includes any injuries caused by your pets, as well.
Finally, good homeowners policies will also include money to cover living expenses away from your home if it is damaged or if you are forced to leave for another reason.
There are a lot of bad things that can happen to your home. Thankfully, you don’t have to handle them alone when you’ve got the right coverage—you get financial help and more. Here are the most common dangers covered by homeowners insurance:
Note: with most homeowners policies, you’ll need to purchase extra coverage for natural disasters such as hurricanes, floods, and earthquakes. So be sure to work with your insurance company to make sure you’re covered if you live in an area where disasters are a possibility.
Also, as with most insurance, there are different levels of coverage for different prices. So again, make sure you have coverage for the things you need, and make sure you avoid coverage for whatever you don’t need.
your insurance carrier will reimburse you for the actual value of your home or household items, minus any depreciation that may have occurred. For example, if your ten-year-old TV is included on your policy and gets destroyed, you won’t receive a check for the cost of a brand-new TV. You’ll be reimbursed based on what a ten-year-old TV is worth.
with this level of coverage, your carrier will pay to repair your home or replace household items based on their original cost. So, if that ten-year-old TV gets destroyed, you’ll receive a check for what you originally paid for that TV ten years ago.
this is the highest level of coverage because it guarantees that you’re carrier will pay to restore your home to whatever condition it was in before a claim—even if the cost of doing so exceeds your limits.
What you need to know to stay covered against floods, earthquakes, tornados, and hurricanes Every year, we are bombarded with images and videos of communities destroyed by natural disasters. It’s a sobering reality that nature is a force we are not able to control, and it can dramatically affect our lives and our homes. So, are you prepared for such disasters? Are you covered if they target your home and your family? You need to be, and the information below can help you get started.
The most important thing you need to know about the connection between insurance and natural disasters is that most basic homeowners insurance policies and renters insurance policies do not include coverage for floods, earthquakes, tornados, and hurricanes. Coverage is available for these and other disasters, but it is typically an add-on to the policy. So, if you have not specifically directed your agent or your insurance company to add these coverages to your policy, it’s likely you are not covered. And that could be a big problem if disaster does strike your community. The solution, of course, is to review your policy and connect with your agent to make sure any gaps are covered.
4 steps to determining the right amount of coverage for your specific situation
Balance is a great goal for many things in life, including homeowners insurance. You need to have enough coverage to make sure you can rebuild and replace anything that’s damaged, but you want to avoid paying more than is necessary.
So, how can you figure out the perfect amount of homeowners coverage for you and your family? There are four steps you should follow based on the four key elements of what your homeowners policy will actually cover:
these are the actual buildings on your property, starting with your home and also including fences, sheds, and so on.
This includes all your “stuff”—furniture, clothing, jewelry, electronics, family heirlooms, and more.
this coverage protects you in the event of a lawsuit if someone is injured on your property.
if you are forced to move out of your home for a time because of a claim, your policy will often cover you for temporary housing costs, food, and so on.
The biggest puzzle piece you need to figure out when determining the amount of your homeowners-insurance coverage is the replacement cost if your home is destroyed. Now, that’s not the same as the price you paid for your home, or even the appraised value—because those include your property as part of the price.
Determining the replacement cost for your home means figuring out how much it will cost to rebuild your home and all other structures—garages, fences, sheds, etc. Be sure to include labor in addition to materials.
So, how do you figure out your home’s replacement cost? You can start by doing the math yourself, looking up the average cost per square foot to build a new home in your community, and then multiplying that number by the amount of square feet in your home specifically. You can also hire a professional to give you an appraisal on the replacement cost for your home.
If it sounds like a daunting task to go through all of your personal belongings and figure out how much everything is worth—or how much it would cost to replace each item—don’t worry. You don’t have to do that.
Why? Because most homeowners-insurance policies determine the value of your personal belongings based on a percentage of your home’s dwelling/structure coverage. Typically, that number is between 50 and 75 percent of your dwelling coverage, which is adequate for most homes.
There is one question you need to answer, however: do you want a policy that covers the “actual cash value” of your household items or the “replacement cost”? There’s an important difference.
The actual cash value is determined by how much your possessions are worth today. For example, if you bought a bed for $1,500 ten years ago, it’s not worth $1,500 any longer.
The actual cash value will be much less. So, if that bed is destroyed, and your policy offers reimbursement at the actual cash value, you will receive significantly less than the $1,500 it took to purchase that bed originally.
On the other hand, basing your homeowners coverage on “replacement cost” means you will be reimbursed the amount needed to purchase a brand new version of whatever is lost. So, if your $1,500 bed is destroyed, a policy based on replacement cost will reimburse you the full $1,500 to purchase a new bed. Of course, that extra coverage costs extra money.
Similar to covering personal belongings, most homeowners policies use a benchmark amount as a starting point for liability coverage—typically $100,000. If you’ve ever been involved in a lawsuit, however, you know things can get very expensive very quickly. So, it may be in your best interest to boost your liability coverage by a significant amount. This is especially true if you have valuable assets that could be targeted through a lawsuit.
The amount covered for additional living expenses in a homeowners policy is also typically based on the amount of dwelling coverage for that policy. So, if you can spend some extra time to get a balanced amount of coverage for your dwellings and structures, you can feel confident you’ll have the coverage you need for the rest of the elements in your home—including temporary living expenses should you have to move out for a period of time.