Standard home insurance policies include a collection of coverages. Some coverages protect against physical losses to your house and its contents. Others pay expenses when you’re displaced from your home or when someone sustains an injury on your property. Purchasing homeowners insurance isn’t complicated, but it can be confusing. If you have questions about where to buy home insurance or how it works, you’ve come to the right place.
What Does Homeowners Insurance Cover?
Most standard home insurance policies include six coverages:
Dwelling: Dwelling coverage helps pay to repair your home’s structure and attached structures such as a carport or garage. It may also cover damaged fixtures such as electrical wiring, heating systems, and plumbing.Other structures: Following a covered loss, “other structures” coverage can help pay to repair detached constructions such as a fence, guesthouse, or tool shed.Loss of use: If you’re displaced from your home due to covered damages, loss-of-use coverage can help pay expenses such as hotel bills and restaurant meals.Personal property: Personal property coverage pays for your home’s contents, such as appliances, clothing, electronics, and furniture. It may also cover a child’s belongings when they go off to college and items stored off-site in a storage locker.Medical payments: If a visitor sustains an injury in your home, medical payments coverage can help pay the medical costs.Personal liability: This coverage can help pay legal bills if someone sues you for damages or injuries related to your home.
What’s Excluded From Homeowners Insurance Coverage?
Typically, standard homeowners policies do not cover damage to your home, or its contents, caused by earthquakes or floods. These exclusions also extend to damages caused by landslides or mudslides, sewer or drain backups, or surface water. Usually, policies also exclude damages caused by nuclear accidents or acts of war. Standard home insurance policies typically do not cover injuries to or the death of family pets, damages to vehicles, or property used for a home-based business. However, many major insurers offer standalone policies or endorsements to cover pets and business equipment. Commonly, homeowners policies set limits on coverage for certain types of belongings, like antiques, collectibles, guns, and jewelry. If you have expensive belongings, speak with your insurance agent about valuable items coverage.
How Much Homeowners Insurance Do I Need?
You should carry sufficient dwelling coverage to rebuild your house. Typically, rebuild costs run lower than a home’s market value, which also includes the lot—something home insurance does not cover. Labor and materials costs can fluctuate over time, sometimes by location, so it’s important to raise your policy’s coverage limits when these prices increase. Insurers base other structures and personal property limits on a percentage of your dwelling coverage. If you own expensive outbuildings such as a barn or pool house, or have pricey personal possessions, you may need additional coverage.
Actual Cash Value vs. Replacement Cost Value
Your policy’s dwelling or personal property coverages may only pay actual cash value to rebuild your home or replace its contents. With dwelling coverage, actual cash value would pay the cost of repairing your home, minus its depreciated value due to age or use. When applied to personal belongings, actual cash value policies pay a depreciated value. Let’s say you bought a TV for $800 three years ago. Today, if a burglar makes off with your TV, the insurance company would pay a depreciated amount based on its age and wear and tear. Some insurance companies offer replacement cost coverage for homes and their contents. When paying to rebuild a home, replacement cost coverage typically first pays actual cash value, then reimburses you for costs that exceed your policy’s dwelling limit. Personal property replacement cost coverage pays to replace a damaged or stolen item at its current market price.
How Much Liability Protection Do I Need?
Liability coverage can cover legal costs and court rulings. Let’s say a neighbor suffers an injury in your home after falling down the stairs. If they sue you, your home insurance policy’s personal liability coverage can help pay your attorney’s fees, court costs, and damages awarded by the court. You need enough personal liability coverage to protect all your assets. For example, if you have $1 million in assets, you need at least $1 million in personal liability coverage. Standard homeowners policies usually limit personal liability coverage to around $100,000 per occurrence, but often allow you to increase the limit. If you need more liability coverage, consider buying an umbrella policy, which would pay after you’ve exhausted the personal liability limit of your home insurance policy. Umbrella policies are affordable, usually start at $1 million worth of coverage, and have low deductibles.
Does Homeowners Insurance Have a Deductible?
Most home insurance policies require you to pay a deductible, and deductible levels may vary by type of coverage. The lower your deductibles, the higher your premium, and vice versa. Deductibles usually range from $500 to $1,000, but some insurers enable you to choose lower or higher limits. Some policies include a separate hail and wind loss deductible. For instance, your dwelling coverage might feature a $1,000 deductible for most perils, but a $2,000 deductible for hail and wind damage.
Can My Insurer Cancel My Coverage During the Policy Term?
Insurance companies can cancel your coverage before the end of the policy term under some circumstances, including:
Abandonment of the insured propertyFraud or misrepresentation when applying for insurance or filing a claimNonpayment of premiumPhysical changes to a home that render it uninsurable, like removing a load-bearing wallReckless or willful acts perpetrated toward the property that increase the insurer’s riskCommitting crimes that can increase the carrier’s risk, such as storing illegal fireworks in the home
Is Homeowners Insurance Required by Law?
State insurance laws do not require homeowners to carry home insurance. But if you have a mortgage, the lender will likely require you to buy and maintain a homeowners policy until you make the last payment.
How Much Does Homeowners Insurance Cost?
The cost of home insurance varies depending on the size of a home and the types and levels of coverage. In 2019, U.S. homeowners paid an average of $1,272 annually for homeowners insurance, according to the National Association of Insurance Commissioners (NAIC). But rates also vary by location. For instance, in 2019, Wisconsin homeowners paid an average of $750 for home insurance, while Texans paid an average of $1,925.
How Are My Rates Calculated?
Premiums can vary widely among insurers, so it’s important to shop around for a policy. Numerous factors can impact your home insurance rate, including the home’s age, construction type, location, and proximity to a fire hydrant and fire station. Brick homes are more fire-resistant than wood-frame structures, creating less risk for insurers. Coverage limits also impact your premium. Choosing low limits for coverages such as personal property coverage can keep your rate low, but adding endorsements such as replacement cost or water-backup coverages will increase the premium. Choosing high deductibles is a simple way to reduce the cost of insurance if you can afford to pay more out of pocket. A homeowner’s credit score can also affect the price of homeowners insurance. Some states allow insurance companies to use credit ratings when determining premiums. Homeowners with good credit scores enjoy more favorable rates than those with poor credit histories.
Are There Any Discounts Available?
Many insurers offer discounts to reduce your home insurance rate. Major providers often extend multi-policy discounts or a discount for bundling auto and homeowners policies. You can also earn discounts by equipping your home with safety and security devices such as:
Deadbolt locksFire extinguishersLaminated glass windowsSecurity systemsSmoke alarmsSprinkler systemsStorm shutters
Will I Need an Inspection Before Buying Coverage?
Often, insurance companies only inquire about the physical characteristics of your home, like its age and construction type, but in some cases, they might require a physical inspection. But if you’re buying a new home, the lender will require an inspection as part of the mortgage process.
Comprehensive Loss Underwriting Exchange
During the underwriting process, many insurers access the Comprehensive Loss Underwriting Exchange (CLUE) database, administered by LexisNexis. Providers that participate in the CLUE program contribute home insurance claims data to the database. CLUE information follows the home, not the property owner. Even if an insurer doesn’t require a physical home inspection, the CLUE data could impact the policyholder’s insurance rate, if the carrier deems the property high risk.
How Do I Get Homeowners Insurance?
Carriers offer various ways to buy home insurance policies. Some providers operate local offices, while others enable you to apply for coverage online or by phone. You can also purchase home insurance through independent agents who typically sell policies for several insurance companies. Whether you’re buying insurance for a new home or shopping around for a new carrier, request quotes from several insurers. Price is important, but also compare coverages, optional coverages, and discounts. Before buying a policy, research the insurer’s customer service record on the Better Business Bureau website and check its NAIC consumer complaint index rating. Also check with your state’s department of insurance to make sure the company has a valid license to sell homeowners policies. Always purchase insurance from a provider with a good financial rating. You can access financial ratings on the A.M. Best, Moody’s, and Standard and Poor’s websites.
Will My Rates Go Up Over Time?
Over time, your home insurance rates might increase. Anything that increases an insurance company’s risk of paying a claim or the amount of money it must spend on claims can lead to premium increases. Common reasons for premium increases include:
Claims: If you file homeowners insurance claims, your rate may increase. Inflation: When their operating costs increase, insurers may raise rates to offset their expenses. Property changes: Home improvements increase your home’s value. Whenever you make significant improvements, you should increase your home insurance coverage (which increases your rates). Construction costs: When construction costs increase, insurance companies often raise premiums to counteract losses. Supply chain problems: Shipping bottlenecks lead to higher construction material costs, which can lead insurers to raise rates. Labor shortages: Worker deficiencies can delay construction and increase contractor costs. Natural disasters: Hurricanes, tornadoes, and wildfires can cause large insurance losses. In areas prone to frequent natural disasters, homeowners may experience regular rate increases. Condition of your home: An aging home can increase an insurer’s risk. To avoid costly premium increases, maintain your home’s major systems. Prevent weather damage by replacing an old roof or installing storm windows. Some providers offer discounts for roof replacement or home improvements.
Is PMI the Same as Homeowners Insurance?
Private mortgage insurance (PMI) protects lenders against default. PMI does not protect a home or a homeowner’s assets. Not all home loans require PMI. Generally, lenders require PMI when a homebuyer can’t make at least a 20% down payment. Likewise, if you refinance a home that has less than 20% equity, the lender might require PMI.
