There are three big reasons to buy homeowners insurance, they include:
Providing property coverage – Insurance covers the physical structure of your home and your stuff if it gets damaged or destroyed.
Providing liability coverage – If someone who is not a covered insured under your policy is injured or killed or his or her property is damaged or destroyed while he or she is on your property, your homeowner’s policy will cover your legal responsibility. This coverage extends to cases where damage or injury happens adjacent to your property, like if a limb of a tree on your property falls on a parked car on the street.
Satisfying your mortgage lender – Most banks make this a requirement of a home loan.
Why You Should Never Go Without Coverage
Let’s say maybe your lender does not require homeowners insurance or your home is paid off. Those are not reasons to go without homeowners insurance. Skipping on coverage altogether to save money is not wise either.
Replacing a roofcan cost a homeowner thousands of dollars. If someone accidentally drowns in your pool, it could reach hundreds of thousands of dollars after hospital expenses. It’s better to pay a fraction of that upfront to protect your investment than to bankrupt yourself hoping nothing bad ever happens.
Something else you might want to think about, if you drop your homeowner’s coverage because you think you do not need it, insurance companies might not be willing to cover you when you decide you want it again. It appears to them as you either you have problems paying your premiums or that you are only looking for coverage to file a claim for something that has already happened. Either way, expect to pay considerably more for your coverage if you can find a company to cover you at all.
Understanding Your Policy
Insurance can read like a foreign language unto itself. For questions regarding insurance terms and definitions, feel free to contact us. The first thing to learn when it comes to property insurance is that not all homeowner’s policies are the same. Often people assume that all policies are created equal, and that is very far from true. Be sure you understand policy coverages, and if you do not, it is better to ask questions than to find out at claim time you are not covered.
Things Covered by a Homeowners Insurance Policy
Coverage on your homeowner’s policy will not kick in unless you experience a loss caused by a covered peril, or reason for the loss. According to the NAIC’s “Consumer’s Guide to Home Insurance,”the list of covered perils includes:
- Fire, smoke, wind, hail, lightning, explosions, or civil unrest
- Theft or vandalism
- Trees and other falling objects
- Weight of ice, snow, sleet and freezing rain
- Rupturing and sudden overflowing of plumbing, heating, air-conditioning appliance or sprinkler system
Things Not Covered by Your Homeowners Policy
- Some common perils occur with such frequency and predictability in certain areas that they are subject to exclusion from basic coverage. The most well-known excluded perils include:
- Floods or sewers that back up into the home
- Land movement, including earthquakes, landslides, and mudflows
- Acts of war, or overthrow of the government
- Damage from pets, birds, rodents or insects
- Pollution damage
- Deliberate damage to the home
- Normal wear and tear
The majority of these are relatively clear-cut perils, but confusion over the types of water damage risks defined by insurance companies exists. Most companies will make it very clear that water damage caused suddenly by a ruptured pipe has coverage while gradual water damage caused by rising floodwaters that seep into a home has no coverage.
Types of Policies that are Out There
How a claim will pay out also depends on the kind of coverage you choose in the beginning. The most popular form of homeowners insurance covers all perils except for those explicitly excluded in the policy language.
Some other kinds of policiesthat differ slightly depending on the type of dwelling insured include the following:
- Modified Coverage Form- this is ideal for older homes, where the cost to rebuild is greater than the market value. It provides coverage for the same set of perils as the standard homeowner’s policy.
- Condominium Unit Owners Form – this provides coverage for owner-occupants of condominium units. This form covers studs out, walls floors, and ceiling as well as your contents against all of the perils. Coverage may also extend for damage to additions, upgrades or renovations made, up to specified limits. It is important to read the policy because coverage for improvements start only after any insurance limits are reached by any policies the condominium association carries.
- Dwelling Fire Form- only provides coverage for your house and a few specific perils. There is no coverage for your personal belongings, personal liability or medical payments. This form is ideal for landlords and vacation homes. It is also the kind of limited policy your mortgage lender will force place should your homeowner’s policy lapse.
Understanding Limits of Coverage
Even if you suffer a loss from a covered peril under your policy, there are limits to the amount of payment you will receive. When you start the quote process, you will discuss with your agent how much the dwelling limit, personal liability and medical payments should be before you purchase the policy. The value of your home will help decipher what these limits should be.
The limits of your coverage for your separate garages, studios, storage sheds, and fences or other structures, your personal property, and loss of use of your home are all shown as percentages of the dwelling limit.
For example, if the dwelling coverage limit is $350,000 and the limit for contents or personal property is 50 percent of your dwelling coverage. Loss of use offers a limit at 20 percent of the dwelling limit, and other structures are 10 percent of that amount. So your coverage for personal property would be $175,000, loss of use would be $70,000, and other structures would be $35,000.
What are Deductibles?
Deductibles can sometimes seem like a four-letter word. However, before claim payments go out, policyholders must meet this obligation of the insurance contract. The purpose of a deductible is to cut down on frivolous claims filed against the insurer. This deductible is meant to be small enough to be affordable for the majority of homeowners and applies to both the home and personal property.
Searching for the Right Homeowners Insurance
Insurance policies come in many different shapes and sizes. The same goes for insurance companies, which can charge wildly different rates for pretty much the same coverage. Learn more about the companies we partner with.
Some things to discuss when quoting your new policy could be things like:
- The claims history of the home you are trying to insure.
- Will submitting a new claim affect the premium when renewing the policy?
- Does credit history affect the premium?
- What is covered on the policy and what is not? What are the coverage limits?
- How much coverage will I need for my stuff?
- How much liability coverage do I need?
- Do I need flood insurance or earthquake coverage as well?
Factors that affect your Insurance Premium
Many ingredients go into the underwriting process when determining the premiums you pay. Each insurance company charges a different premium than the next for almost identical coverage. How much insurance coverage you decide to buy may also affect the premium.
Other things that are likely to affect your premium include:
- The total amount it would take to reconstruct your home, this is not market value, which includes the cost of the land. We can help you estimate replacement cost using information about your home and its contents.
- The construction of your home will affect the premium. Is it brick or wood? The rates are usually lower for homes that are primarily brick or masonry versus those that are wood frame.
- The distance from your home to the nearest fire department and the fire departments rating is also an important rating factor.
- The age and condition of your home is a huge factor. The premium is often higher for older homes and homes that are in bad condition versus newer homes and homes in better shape.
- Your neighborhood and community, especially the homes directly next to your address and their claim history can affect your rating as well.
- Most companies view a wood furnace or wood stove in the home as high risk.
- Owning high-risk outdoor amenities, such as a swimming pool, a trampoline or playground equipment that could cause injuries
- The types of pets you have. Some insurers will not offer coverage if you own certain breeds of dogs known to be aggressive while other companies do not exclude specific breeds, choosing instead to consider individual animals on a case-by-case basis.
Work with a Licensed Insurance Agent
There are so many ins and outs of the homeowner insurance policy; it is imperative that you work with a licensed professional. Finding out at claim time that you do not have the proper coverage is not fun. We can answer any questions or concerns that you may have regarding homeowners insurance.