Home insurance is a personal property insurance contract between you and an insurance company that protects your investment in your home, as well as your personal liability. You pay an agreed-upon amount of money (premium) to the insurance company in exchange for protection against the costs of disasters and accidental loss or damage to your home, premises, and anything on the property. Home insurance also provides liability coverage to you and family members living in the home. A homeowners insurance package combines all of the above elements to protect you from unexpected financial hardships by providing you with compensation when a qualifying insurance claim occurs. Home insurance does not cover home maintenance or regular wear and tear. However, if someone gets injured on your property, or if you injure someone or cause damage to someone else’s property and are held liable, home insurance will provide coverage, including costs of legal representation to defend you.
Example of Homeowners Insurance
For example, Mindy gets home from work to discover that there is water all over her hallway. She realizes it is coming from the bathroom sink, where a pipe suddenly burst. She calls her home insurance company for help and they send someone over. The insurance company representative assesses the damage and understands it was not the result of poor maintenance; the peril is covered. Mindy is worried about how much this will cost, but because she has a good home insurance policy, the insurance company will pay for the cost of cleaning up the mess, drying up the area, trying to rescue any salvageable items, and replacing the damaged personal property that got wet, as well as replacing the floors. If Mindy can’t live in her home while they renovate, the home insurance policy will also cover Mindy’s additional living expenses while the home is being fixed. When all is said and done, Mindy only pays her insurance deductible, and the rest of the damage from the water is repaired and paid for by the insurance.
Types of Home Insurance
There are many types of home insurance to choose from. Although insurance companies may brand homeowner policies with fancy policy form names, or add additional coverages to offer more competitive products, all home insurance policies will be built on standard Insurance Services Office (ISO) policy forms. These include the following:
HO-1: A basic form policy, the HO-1 offers the most basic of coverage, covering only 10 named perils on both the building and contents. HO-2: This form is a broader version of HO-1, covering more than the basic 10 named perils. HO-3: This is the standard home insurance policy. It provides an affordable way to have all risk coverage on your building while maintaining more limited coverage on the movable items in your home (your personal belongings). Those items are covered for 16 named perils. HO-4: Renter’s insurance. HO-5: A comprehensive policy, the HO-5 offers all-risk coverage on both the building and contents (your personal belongings), as well as medical payments coverage. This type of policy offers the best protection. HO-6: Condo insurance. This often covers the contents within the interior walls of the condominium. HO-8: It offers minimal coverage. It is often used for older homes where the market value of the home may be less than the cost of reconstruction, or where the materials used in the construction of the home are of a quality that can not easily be found in modern times.
Home insurance is just one type of personal property insurance. There are also other specialized insurance policies for other types of property owners, such as mobile home insurance.
What Does Home Insurance Cover?
Home insurance is a package that covers five basic things. The amount of coverage, or policy limits, for each of these will be found on the declaration page of your insurance policy:
Structure of your homeAdditional structures on the propertyAdditional living expensesPersonal propertyLiability
Depending on the policy type you choose, your personal property and building will be covered for all risk (open perils) or named perils. All risks or open perils cover you for are “risks” (things that can go wrong and that cause a claim) as long as they are not excluded in the policy wording. Named perils covers you only for risks that are specifically mentioned in the policy wording, such as fire, smoke, explosion, or theft. Finally, the home insurance policy contract will define the basis of claims settlement. This is how you know how much you will get paid in a claim. The most common options are the actual cash value (ACV) or replacement cost. This makes a significant difference in how much money you get paid in a claim. There may also be extra coverage you can add to your policy with insurance riders or endorsements. Some common endorsements to consider include:
Water backupWind and hailEarthquakeJewelry or other ridersOrdinance or law coverageFlood insuranceHome business
Do I Need Home Insurance?
If you are like many people, your home is one of your greatest assets. Homeowners insurance is a good idea to help prevent having to pay out sudden expenses if there is a disaster. Unless you have a significant emergency fund that you would be willing to spend to repair or replace damage yourself, you need home insurance to protect your residence and give you peace of mind. With home insurance, if something bad happens, such as a fire, you know you won’t find yourself on the street. Homeowners insurance also protects your assets by providing you with liability coverage. Finally, home insurance is good protection for your personal belongings. If you are ever a victim of theft or burglary, your home insurance will help you replace what you have lost. Although home insurance is not required by law, you need home insurance if you have a mortgage or loan on your home because the lender will require it.
How Much Does Homeowners Insurance Cost?
The cost of home insurance will be based on several factors. The main factor will be the cost of reconstruction of your home, where your home is located, and what the loss experience is in the area where you live. For example, if you live in an area with a lot of crime, or with a high incidence of storms or water damage, rates may be higher than in areas where there is less crime or less incidence of severe weather. Since home insurance also covers your personal belongings, the amount of coverage you need impacts the cost of your policy. Your personal information and insurability score are also used to determine the cost of home insurance. This may include your past insurance history and your credit rating, and other information that may grant you discounts on the price. Data from Progressive Insurance indicates that the cheapest states for homeowners insurance include Arizona, California, Delaware, Utah, and Vermont. The average yearly cost of homeowners insurance in the cheapest states is $999. The most expensive states for homeowners insurance include Colorado, Kentucky, Florida, Nebraska, and Texas. The average yearly cost of policies in the most expensive states is $1,655.
How To Get Homeowners Insurance
There are a few ways you can get homeowners insurance. The easiest way is to search for quotes for home insurance online. It is always a good idea to read home insurance company reviews to find out if there are companies in your area that have a good reputation for customer service and claims. You can also contact an insurance company directly or work with an agent or insurance broker to help you find different options. Your State Insurance Commissioner’s Office may also be able to provide good resources to find home insurance. California, for example, has a database of home insurance company information for consumers.
