Let’s imagine you’ve just bought a house – the biggest purchase you’ve ever made. But what happens after?
Keeping your home safe and sound, especially when unexpected problems hit, can be tough. That’s where homeowners insurance comes in.
It’s not a fancy extra; it’s something you really need. Think of it as a safety net for your pocket. It protects you and your house if things get damaged or stolen.
The right plan could even stop you from dipping into your savings if your house needs fixing after a storm or rebuilding after a fire.
In this easy-to-read guide, we’re going to talk about everything you need to know about homeowners insurance – what it is, why it’s important, what it costs, and our top picks.
What is Homeowners Insurance?
Homeowners insurance, or home insurance, is a kind of plan that protects you financially if something bad happens to your home or things. But it doesn’t just look after your house and stuff.
Most usual plans also offer coverage if someone gets hurt on your property and decides to ask for money. Some plans even cover the cost of a hotel stay if, for some reason, you can’t stay in your house.
You don’t even need to own your home to need insurance. Many people who rent out homes need their renters to have renter’s insurance.
But even if it’s not needed, it’s a smart move to have this protection. Let us guide you through the basics of home insurance plans.
Should I get home insurance?
Home insurance is often needed when you’re getting a mortgage. Almost all banks ask borrowers to get coverage for the full cost of a property.
If you’re a renter, you might also need insurance. Many landlords want their tenants to have a policy. Even though they do this to keep themselves safe financially, it’s wise to have this kind of protection too.
Imagine if something unexpected happens, like a fire, a natural disaster, or theft. Home insurance can really help. It’s a low-cost way to make sure you won’t have to pay from your own pocket to fix or rebuild your home.
What is covered under Home Insurance?
Home insurance policies can be tailored to fit your needs, but they usually cover a few key things.
Damage to Your House – If things like fire, hurricanes, lightning, or vandalism damage your house, your insurance will pay you so it can be fixed or even fully rebuilt.
But damage from floods, earthquakes, or lack of upkeep is often not covered. You might need extra coverage for this. The same goes for other buildings on your property like garages or sheds.
Your Belongings – Things like clothes, furniture, and appliances are covered if they’re destroyed in an insured event. You can even get coverage for things you lose outside your home.
There’s usually a limit to how much you’ll be paid back, though. If you have very valuable items, you might need to pay more to cover them.
Injury or Damage Liability – This coverage protects you if someone else sues you. This even includes your pets! So if your dog bites your neighbor or your kid breaks their expensive vase, your insurance will pay for it.
If someone gets hurt because of something that happened on your property, you’re covered too.
Living Expenses – While Your Home Is Fixed If you have to leave your home while it’s being fixed or rebuilt, your insurance can pay for your rent, hotel stay, and meals.
But there are usually strict limits on how much you can spend each day and in total. You can increase these limits by paying more for your coverage.
What is the cost of a home insurance policy?
The price of a home insurance policy depends on many things. These could include what buildings and items you want to be covered, where your home is, and how big your property is.
Some insurance companies can choose not to cover certain homes. They might look at the condition of your home and decide they won’t make money from insuring it.
This could make them less interested in giving you coverage. Or they might just increase your premium to make sure they profit. This can also happen if a home has had many insurance claims in the past three to eight years.
Home insurance isn’t tax-deductible if the property in your policy is your main home. But if you have insurance for any rental properties you own, you can take a tax deduction for those.
Homeowners Coverage
Not all insurance is the same. The cheaper the home insurance, the less coverage you’ll likely get, and the opposite is also true.
In the U.S., there are several standard types of home insurance, named HO-1 through HO-8. They offer different levels of protection based on the homeowner’s needs and the kind of residence.
There are basically three coverage levels.
Actual cash value covers the cost of your house and the value of your stuff after taking off depreciation (this means what the items are worth now, not what you paid for them).
Replacement cost policies cover the actual cash value of your home and things without taking off for depreciation. This means you can fix or rebuild your home up to the original value.
Guaranteed (or extended) replacement cost/value is the most thorough coverage. This pays for whatever it costs to fix or rebuild your home, even if it’s more than your policy limit.
Some insurers offer an extended replacement, which gives more coverage than you bought, but there’s a cap. This is usually 20% to 25% more than the limit.
How to Compare Home Insurance Companies?
Here are some tips when you’re looking for an insurance provider.
- Compare costs and insurers in your state: First, check out your state’s Department of Insurance website. You can see the ratings and complaints for every home insurance company in your state. You can also see the average cost of home insurance in different parts of your state.
- Check the company’s health: Look at the scores of the home insurance companies you’re considering on websites of top credit agencies and the National Association of Insurance Commissioners, and Weiss Research. These websites also track customer complaints and other data, like how fast claims are processed.
- Check out their claims response: If you have a big loss, you don’t want to have to pay for everything upfront and wait for reimbursement. Some insurers are outsourcing the handling of claims. Before you get a policy, determine who will handle your claims.
- Don’t just look at the price: The yearly premium often decides which policy to buy, but don’t only look at the price. Every insurer uses different policy forms and endorsements, and policy wording can differ. You need to compare coverages and limits.