Your home and the personal belongings in it are valuable. Homeowners insurance is a type of insurance that protects your home and your property in unpredictable situations including weather disasters and theft. Homeowners insurance also protects you, the homeowner, in case someone is injured on your property and decides to pursue legal action against you.
To find the best home insurance for you, you’ll want the coverage you need at an affordable price from a reputable company that will be there for you when you need it. Use this homeowners insurance guide to learn more about the value of home insurance and how to get the right amount of coverage.
Shopping for Homeowners Insurance
Why You Need Homeowners Insurance
There are many situations outside of your control that can cost you a lot of money if you don’t have homeowners insurance coverage. Natural disasters like hurricanes can damage the exterior and interior of your home, resulting in the need for costly repairs. Not only can natural disasters cause damages to your property, but it can also ruin your most expensive belongings.
If someone breaks into your home and steals your possessions, you’ll have to pay out of pocket to replace them if you don’t have homeowners insurance. Also, if someone gets hurt on your property—for example, a kid breaks his leg at your child’s pool party—the other family could sue you for negligence. Homeowners insurance protects you in situations like these.
Homeowners Insurance Coverage
Homeowners insurance coverage depends on the company you’re getting it from and the policy you select. In general, home insurance inclusions are exterior and interior damage, loss or damage of your personal belongings and assets, and liability. While your policy may cover some natural disasters, in certain cases, there may be exclusions. For example, you may be required to purchase additional coverage for certain disasters, like earthquakes and floods. Some types of damage, like overflows from a sump pump or sewer system or damage to a home by acts of war, may also be typical homeowners insurance exclusions.
If your home is damaged to the point that it’s unlivable, be aware that homeowners insurance generally doesn’t cover full expenses for hotel stays. Also, keep in mind that while you may be reimbursed for the value of your possessions, you won’t necessarily get the amount you need to purchase replacement possessions. For example, if your laptop is stolen and it’s old and has a value of $250, you may have to pay extra out of pocket for a new computer. A common misconception is that homeowners insurance replaces exactly what you lose, but there may be exclusions depending on how damage occurs and the current value of your possessions.
Types of Homeowners Insurance Coverage
- Dwelling protection: Dwelling protection covers the cost of repairing and rebuilding your home when it’s damaged by environmental factors like fire, lightning, hail and wind.
- Other structures protection: Other structures protection provides coverage for structures other than a home, like a detached garage or fence.
- Additional living expenses coverage: Additional living expenses coverage covers costs of living for a policyholder who is temporarily displaced from a residence.
- Personal property coverage: Personal property coverage includes items inside your home if they’re destroyed or stolen.
- Liability coverage: Liability coverage protects homeowners when accidents happen at their home and they’re to blame, including injuries caused by pets.
- Medical payments coverage: Medical payments coverage protects homeowners when accidents happen at their home, regardless of who is to blame.
How Much Coverage Do You Need?
- Actual cash value (ACV): Actual cash value is equal to the replacement cost of property minus the depreciation, which is less than the cost it would take to replace an item. Applying ACV to items in a policy generally lowers the cost of premiums, since you’ll be paid less in claims.
- Replacement cost value (RCV): Replacement cost value is how much money it would cost to replace a damaged or destroyed property in today’s market. Applying RCV to property in a policy generally ups the cost of premiums, since you’ll be paid the full amount you need to replace items in today’s market.
- Guaranteed replacement cost/value: Guaranteed replacement cost/value is a policy valuation option that pays the full cost of replacing property, even when the amount exceeds policy limits. Applying this to a policy generally increases the cost of premiums.
Homeowners Insurance Shopping Tips
- Understand deductibles: A homeowners insurance deductible is how much you’d have to pay out of pocket before the insurance company pays you for your loss. Generally, the higher the deductible, the lower your premium. With a $500 deductible, you’d pay higher premiums but only $500 before an insurance company pays you for damage. With a $1,000 deductible, you’d pay lower premiums but you’d have to pay $1,000 before an insurance company pays you for damage.
- Choosing coverage limits: Lower limits minimize your deductible, but be mindful of how much you’d be able to pay out of pocket to cover your costs. A fire can completely destroy a home and all your possessions. Get enough coverage to rebuild your home, replace your personal property, cover injuries and damages on your property and reimburse your living expenses if you lose your home. That might be several times more than the minimum coverage you’re offered.
For more information, check out this guide to homeowners insurance coverage.
Understanding Homeowners Insurance Premiums
There are several factors that determine the cost of homeowners insurance premiums. How likely you are to file a claim greatly influences your risk profile, and thus, your premium. Insurance companies look at past home insurance claims you’ve submitted, as well as claims related to your credit and your property. Other aspects that may influence a homeowners insurance premium are the neighborhood that you live in, crime rate and availability of building material. Remember, the type of coverage you secure and add-on policies may also affect your rate.
- Square footage
- Neighborhood and crime rate
- Homeowner’s past claims
- Homeowner’s credit
- Past claims on property
- Homeowner’s personal belongings
- Potential dangers at the home, such as an unfenced pool or a trampoline
- Year of construction
- Type of construction
- Roof type and age
- Number of rooms
- Garage type (if applicable)
- Foundation type
- Security systems, burglar alarms and smoke detectors
- Type of heating and air conditioning systems
Tips to Lowering Homeowners Insurance Rates
- Home improvements: The safer your home is, the lower rate you may be able to secure. You can further secure your home by adding detection systems and working smoke detectors. You might also consider fencing and padlocking a pool and any other potentially dangerous equipment, like a trampoline.
- Deductible: Choose a higher deductible to lower your premiums. You’ll have to pay more out of pocket should damage or theft occur, but you’ll pay less up front, which can save you money if your home stays safe.
- Bundling: Many providers offer homeowners insurance at discounted rates when they bundle their homeowners plan with other insurance, like car insurance. Check out the best companies for bundling home and auto insurance.
To purchase homeowners insurance, you need information like how much it would cost to rebuild your home, the style of your home’s build, how old your home and its features are and what type of heating and air conditioning systems you have. Once you have the information about your home on hand, you can get the homeowners insurance purchasing process started online. Check out the best homeowners insurance companies to compare your options, then contact several companies to compare quotes for the coverage that’s best for you.