Are You Covered? A Homeowner’s Policy Guide
By Brandi Sitter, REALTOR®
No one likes to think about disasters. Severe weather, fire, theft—or even a seemingly small issue like a broken pipe—can wreak havoc on your home and result in thousands of dollars in damages. Fortunately, a good homeowners insurance policy can offer you peace of mind that you and your family will be financially protected if disaster strikes.
A homeowners insurance policy covers your home—as well as the belongings in it—in case of theft, accidental damage, or certain natural disasters. In fact, most financial institutions require that you purchase homeowners insurance before they issue a mortgage. While coverage varies, most policies also help to protect you from liability should someone outside your household become injured on your property. And that liability coverage is often extended to include damage you (or anyone living in your household) may do to someone else’s property.1
With all the protection offered, it’s equally important to understand what a home insurance policy does NOT cover. For example, homeowners insurance won’t pay to repair malfunctioning systems and appliances within your home. And terms vary, but standard policies typically exclude coverage related to floods, earthquakes, slow leaks, power failure, neglect, aging, faulty repairs or construction materials, and acts of war.2
Homeowners Insurance Covers Things Like:
● Structure ● Roof ● Windows ● Furniture/Personal Belongings ● Liability for Non-Residents Injured on Property ● Liability for Damage or Injury Caused by You or Your Pets |
Most Standard Policies DON’T Cover:
● Malfunctioning Systems & Appliances ● Floods ● Earthquakes ● Slow Leaks ● Power Failures ● Neglect or Aging ● Faulty Repairs ● Acts of War |
NARROWING THE COVERAGE GAP
So how do you minimize your risk when so many potential issues are excluded from a standard homeowners policy? Many insurers offer supplemental coverage options that can be tacked on to a basic policy. We explore this further in the section below on “7 Tips for Purchasing Homeowners Insurance.”
Some homeowners also choose to purchase a home warranty, which covers many of the systems and appliances in your home that are NOT covered by homeowners insurance. Home warranties are separate from homeowners insurance, so if interested you’ll need to seek out a policy through a dedicated provider.
While terms vary, a home warranty will often pay to repair or replace components of your HVAC, electrical, plumbing, and some appliances that fail due to age or typical wear and tear. Unlike homeowners insurance, home warranties aren’t required by mortgage companies. But many homeowners like the added financial protection and peace of mind that home warranties provide.3
Keep in mind, if you do purchase a home warranty, you will still be responsible for paying a service fee, or deductible, every time you use it. And you will be limited to using service providers who are contracted through your home warranty company.
7 TIPS FOR PURCHASING HOMEOWNERS INSURANCE
Whether you’re shopping for a new policy on your first home or you’re considering switching providers on an existing policy, it’s important to do your research beforehand. Not all insurance policies—or providers—are created equal. A little due diligence can save you time, money, and hassle in the long run.
- Prioritize Service and Value
When choosing an insurance provider, ask around for recommendations. Check with neighbors, friends, and family members, particularly those who have filed an insurance claim in the past. Find out if they had a positive or negative experience. Read online reviews. Ask your real estate agent for a referral to a reputable insurance broker who can help you compare your options.
Don’t just choose the cheapest policy. Instead, search for one that offers excellent client service and provides the best coverage for the cost.
- Choose the Right Level of Coverage
Your policy limits should be high enough to cover the cost of rebuilding your home. Don’t make the common mistake of insuring your home for the price you paid for it. The cost to rebuild could be higher or lower, depending on the value of your land, your home’s unique features, market factors, new building codes, and local construction costs.4
Also, consider whether you need a higher level of liability insurance to protect your assets. If your investments and savings exceed the liability limits in your policy, you may need to purchase an excess liability or umbrella policy.
Ultimately, you should make sure your coverage is adequate to mitigate your losses—but don’t pay for excess insurance you don’t need.
- Inquire About Additional Coverage
Ask your insurance agent about additional coverage options that can help close any gaps you have in your policy.
For example, if you’re in a flood or earthquake-prone area, experts strongly recommend that you add those coverages to your policy. In fact, flooding is the most frequently occurring natural hazard, and a significant percentage of insurance payouts are for homes outside “flood zones,” or areas known to be at risk of flooding. So even if your home is not technically located in a flood zone, you may want to add flood coverage to your policy, just in case.5
Expensive jewelry, furs, collectibles, or artwork may not be fully insured by a standard policy. Ask about raising your limits for any items of particular value, or check with a specialty insurer about a separate policy for such items.
- Decide on “Replacement Cost” or “Actual Cash Value”
Insurers can use a variety of methods to determine how much they will pay to reimburse you for a loss, but the two most common are “replacement cost” or “actual cash value.”
If your seven-year-old sofa is damaged in a fire, replacement cost coverage will pay you the cost to purchase a new, comparable sofa at today’s prices. Actual cash value coverage will pay you for the depreciated value of the sofa you lost—so what you would pay to buy a seven-year-old sofa rather than a new one.6
While a replacement cost coverage policy will result in a bigger payoff if you suffer a loss, it will probably require a larger annual premium. Compare both options to find out which is the better fit for you.
- Consider a Higher Deductible
A deductible is the amount of money you are responsible for paying on a loss before your insurance company will pay a claim. Opting for a higher deductible can reduce your homeowners insurance policy premiums.
Note that in some cases, your insurance policy may have a separate or higher deductible for certain kinds of claims, such as those caused by floods, windstorms, hail, or earthquakes.
While a higher deductible can save you money on your premiums, opt for one that is still affordable given your current financial situation.
- Try Bundling Your Coverage
Combining your home, automobile, and other policies under one insurer can often result in a significant discount. And some insurers offer additional benefits, such as a single deductible if property insured by multiple policies is damaged. For instance, if a fire destroys your home and your car, you may only have to pay the higher of the two deductibles. Bundling can also make payment and renewal of your policies more convenient.7
However, bundling isn’t always the best or least expensive option. In some cases, you may find better coverage options, service, and/or pricing if you split your policies between multiple insurers. So be sure to consider all of your options before making a final decision.
- Reassess Your Policy Each Year
Even if you’ve done all your due diligence before purchasing a homeowners insurance policy, don’t set your annual renewal on autopilot. Instead, when it comes time to renew, take some time to consider factors that have changed over the past year.
For example, have you made any home improvements that would require you to raise your coverage limits? Have you made any security or safety improvements that qualify you for a discount on your premiums?8
Has there been a shift in market conditions that would make it more or less expensive to rebuild your home now? If so, you may need to adjust your coverage levels accordingly.
If you’ve made any changes to how you use your home, you may need to adjust your policy, as well. For example, if you’ve started a home-based business or occasionally rent out your home on a home-sharing site, you may not be fully covered by your existing policy.9
Finally, consider any changes to your financial situation that may require increased liability coverage limits. If you’ve grown your investments or inherited property, it may be time to purchase additional coverage to protect your expanding asset base.
MINIMIZE RISK, MAXIMIZE VALUE
Now that you understand the basics of a homeowners insurance policy, you should be ready to start shopping for a policy that best fits your needs and budget. Your goal should be to minimize your risk while maximizing the value your policy provides.
While you never want to leave yourself without a safety net should disaster strike, you also don’t want to overpay for insurance you don’t need (and will hopefully rarely use). Aim to strike a balance that will provide you with adequate protection at an affordable price.
The above references an opinion and is for informational purposes only. It is not intended to be financial or insurance advice. Consult the appropriate professionals for advice regarding your individual needs.
Hope this was helpful! Let me know if you have any questions about finding a great Home Insurance policy. Call
Sources:
- Insurance Information Institute –
https://www.iii.org/article/what-covered-standard-homeowners-policy - com –
https://www.insure.com/home-insurance/exclusions.html - American Home Shield –
https://www.ahs.com/home-matters/cost-savers/whats-the-difference-homeowners-insurance-vs-home-warranty - Insurance Information Institute –
https://www.iii.org/article/how-much-homeowners-insurance-do-you-need - com –
https://www.realtor.com/advice/buy/buying-home-insurance - Texas Department of Insurance –
http://www.helpinsure.com/home/documents/acvvsreplace.pdf - com –
https://www.insure.com/home-insurance-faq/bundle-insurance-policies.html - National Association of Insurance Commissioners –
https://www.insureuonline.org/consumer_homeowners_ten_tips.htm - HomeAway –
https://help.homeaway.com/articles/Do-I-need-a-special-vacation-rental-insurance-policy-for-my-property
It’s great that you explained how you should make sure that you should check your insurance policy every year and consider how your life changes. We are finally about to buy our first home, and my husband and I are trying to decide what the best options would be for our situation. I am really glad I found this article so I can share it with him and we can finally make a decision on where to get home insurance.
So glad this helped!
I found it interesting when you said that a homeowner’s insurance policy covers your home as well as the belongings in it, in case of theft, accidental damage, or certain natural disasters. My brother is planning to buy a house but he is asking my parents for suggestions because he wants to know exactly what other expenses he has to cover as a homeowner. I will suggest to him to check well what type of home insurance he gets so that he can have peace in mind.
Thank you for this very detailed guide on homeowners’ insurance. It’s great that you elaborated on tips for purchasing one. My wife and I recently bought our first home, and we’re now thinking about buying insurance, so I’ll definitely be considering your tips. I’ll start consulting the appropriate professionals just as you suggested!
I am glad that I came across your Household Service Audit. Thanks for sharing the post. Not only Auto Insurance, but every household also needs an “Insurance” to protect themselves from all the hazards.
Great Post, thanks for sharing it with us. Have a nice weekend ??. Appreciated at Instant Insurance Online
We’ve been experiencing an intermittent power outage for the past few months because of some new fuse installation. Because of that, my dad accidentally tripped and damaged a part of our staircase. We were wondering whether or not we can have the insurance cover the house’s repair and my dad’s medical treatment, but thanks to your article, we weren’t only able to grasp the liabilities included of insurance, but also the policies that can’t be covered such as power failures, slow leaks and the like.
You said that replacement cost coverage will pay you the cost to purchase a new sofa. This is great to remember because I am about to buy a new house. I’ll start looking for homeowners insurance soon.
Thanks for the tip to prioritize service and value when we look for an insurance provider. My husband and I need to find a home insurance provider soon. Your article helped me feel prepared to find a good insurance company to work with!
My wife and I are planning on buying our first home together this spring and we want to make sure we know all the details of homeownership before getting started. Thanks for the advice of getting a policy whose highest limits is enough to rebuild our home! We will be sure to keep that in mind when choosing an insurance policy.
I want to purchase my first house by the end of October. I will need to get some insurance for it as well. So, I liked your suggestion about looking into what the policy covers. That would be really good for me to understand in case I need it to get anything repaired.
My brother told me that he has been saving money together with his wife to buy their first home but they don’t know what other payments they will have once they buy a house. I like how you explain that when choosing your homeowners’ insurance, you must cover it for a higher value in case you need to rebuild it. I will recommend them to check different insurance companies so that they can choose the right homeowners’ insurance so that they can protect their heritage.
wow yes, just what i need. this is really going to go a long long way for me, thanks for this knowledge you have shared for us.
It was helpful when oyu said to see what has changed every year. My husband and I are planning on moving into our very first home in a couple of weeks, and we want to make sure that we know everything we need to know about getting homeowners insurance. I really appreciate you helping me learn more information about homeowners insurance!
It’s valuable that you mention that homeowners insurance can help protect you financially in case your home is destroyed in a disaster. I want to purchase my first house soon, so I should probably buy some homeowners insurance for it. I’m going to search for a reputable business that can sell me some homeowners insurance.
It stood out to me when you explained that we need to find a balance of having a safety net and not having more insurance than we need. My sister and her husband are planning on buying their first home later this year since they want to have the freedom to customize their living space however they want, especially when they start a family of their own. I’ll pass along this info to help them make good coverage decisions since this will be their first time choosing home insurance as well!
Thanks for helping me learn more about homeowners insurance. I find it interesting to learn that this covers any damage caused by floods or earthquakes, provided that you have the coverage for them. My friend is thinking of owning a home this year, and he’s looking for advice on how to deal with natural disasters. I’ll suggest that he consider getting homeowners insurance for his dream home.
It’s helpful that you point out that homeowners insurance can help cover you financially in case your home is damaged or destroyed in a disaster. I’m thinking about purchasing a new house soon, so I should probably get some homeowners insurance for it. I’m going to search for a reputable business that can sell me some homeowners insurance.
My fiance and I are in the process of looking for houses but we haven’t really done anything, and we want to know when is the best time to hire home insurance. It’s interesting to know that home insurance is preferable best to be hired before your mortgage is issued due to the coverage can change. I will definitely follow your advice to make sure that I get all the coverage I need.
It’s great when you mentioned asking for recommendations when choosing an insurance provider. I am planning to buy my own house next year and I believe having insurance is crucial to protect my property. I will keep in mind to check with my peers on their experiences and go for the one that is most helpful and recommended by people around me.
It’s helpful that you point out that homeowners insurance can cover your financial losses in the event that your house is damaged in a disaster. My wife and I want to buy our own house soon, so we’ll want to make sure that we purchase some homeowners insurance for it. I’m going to see if there’s a good business in the area that can sell us some homeowners insurance.
It’s great that you elaborate on how a homeowners insurance policy can cover you financially in case your house gets damaged. I’m contemplating buying a house soon, so I’ll want to make sure that I purchase some homeowners insurance for it. I’m going to see if there’s a good company in my area that can sell me a homeowners insurance policy.
My husband and I are about to buy a house and we are looking for advice to be able to choose the right home insurance. I appreciate that you made a list of the things that most insurances cover, and what other things they don’t cover. We will start looking for different options, and we’ll see what benefits us the most and what doesn’t’.
My sister would like to buy a house, which is why I informed her that she must obtain homeowners’ insurance as well because this will help protect her finances just in case something happens. Well, it is a great thing that you’ve mentioned here the insurance will cover the structure, roof, windows, and personal belongings. I’ll also keep in mind to inform her that she must check the warranty first.
Knowing what homeowners insurance does and does not cover is very important. Thank you for sharing!
My brother intends to own a home before this year ends so that he could show it to his parents-in-law that he is capable for their child. Your suggestion of how he should consider getting home insurance that can provide additional coverage if ever the home needs rebuilding is a great idea. We should probably look for home insurance first before jumping the gun.
Thank you for pointing out that homeowners insurance can help cover your financial losses in the event that your house gets damaged. My wife and I are thinking about buying a house next year, so it sounds like we’ll need to buy some homeowners insurance. I’m going to look for a reputable business in our area that can help us get some homeowners insurance.
My mom has been thinking about getting some better insurance to protect her home from some harsh storms. She would really like to make sure that she can get the coverage from a professional. I’ll be sure to tell her about how she can reduce the policy premiums if she opts for a higher deductible.