No one wants to come home to find their house on fire or discover they have been robbed. It’s horrible to even think about.
While you may be displaced for a while as your house is getting rebuilt, or taking time to recover or replace your personal belongings, there is one good thing coming from all this: your homeowners insurance policy will take care of everything.
Homeowners insurance helps provide financial coverage for your dwelling and personal property. It also provides liability coverage, so that if a visitor gets injured in your home, your home insurance can help pay for legal fees and medical expenses.
In this post, I will highlight all the basics you should know about homeowners insurance coverage, including:
Let’s get started with this post.
Why Do You Need Homeowners Insurance?
There are two main reasons why you need home insurance: homeowners insurance protects your investment in property, and it’s often required.
Homeowners Insurance Policies Protect Your Investment
Your home is one of the most valuable assets you have. When you purchase a home, you’re not just buying property–you’re making an investment in your future. Some people buy homes to raise a family and give to their kids after they pass. Others view owning property as an investment, and eventually sell their home for more (hopefully) than what they purchased it for.
Whatever your reason, you need to protect that investment. If your property is damaged or destroyed by a peril you don’t have coverage for, you’ll have to pay for the repairs or rebuild out of pocket.
Also, homeowners insurance covers more than just damages to your structure. A standard homeowners insurance policy provides you with personal property coverage, liability protection, and more!
Home Insurance Policies Are Often Required
If you have/will need a mortgage, homeowners insurance is all but required. Before giving you a loan, your mortgage lender usually asks you to provide proof of insurance to ensure your property is adequately covered. They need to make sure that their financial investment in your property is protected.If it isn’t, one of two things will happen: Either you won’t get your loan, or your lender can buy insurance and charge you for it. Often, what your lender purchases will be more expensive than what you can buy on your own. When you shop around and see what an insurance company has to offer, you can determine how to get the cheapest homeowners insurance for what you need. Trust me, that’s worth researching.
What Does A Standard Homeowners Insurance Policy Cover?
Dwelling coverage (also known as hazard insurance) helps cover repairs and rebuilding costs if your home’s structure is damaged due to certain perils or hazards. Basic dwelling coverage covers:
Dwelling coverage also covers your home’s attached structures, like a porch or deck. However, the amount of coverage you’ll receive is based on how much it would cost to rebuild your home when you purchase your home insurance policy. For example, if you purchased your policy in 2015 when it would cost $100,000 to rebuild your home, but now it costs $105,000, dwelling coverage will usually only cover $100,000. An additional replacement cost coverage policy would take care of the rest.Dwelling coverage does not protect you against certain natural disasters, like floods and earthquakes. You will have to buy separate policies if you want them covered, and in some geographical locations, they’re required.
Other Structures Coverage
Dwelling coverage also extends to other structures on your property that aren’t attached to your home. In other words, if you have a fence, shed, or detached garage, they’re also protected. That means that if part of your fence is hit by a car, your dwelling coverage will help pay for the cost to repair it.
The typical amount of other structures coverage you get with your standard policy is around 10% of your dwelling coverage. If your dwelling coverage policy is $300,000, then your other structures coverage is $30,000.
Additional Living Expenses
If you have to live somewhere else while your home is getting repaired, the cost of your additional living expenses is covered (assuming your policy covers your home's damages in the first place). Depending on your insurance company, these expenses can vary, but typically they include the cost of hotel bills or your home rental, restaurant meals, and other related expenses.
Keep in mind this coverage is designed for you to maintain your typical standard of living. If you’re living in a one-bedroom condo, you won’t be covered if you’re temporarily staying in a small mansion. However, since you’re likely to be eating out more, insurance companies will understand if your restaurant bill is a little higher than usual. Make sure you keep the receipts so that you can get reimbursed.
Personal Property Coverage
If your home got robbed tomorrow, how much would it cost you to replace all your personal belongings? Personal property insurance covers theft, and any damage done to your belongings are covered up to the limit of your policy.
Standard homeowners insurance policies cover:
There are a few things to keep in mind when your personal property is concerned.
First off, there are a few key items not included in your standard policy, like your pets and motor vehicles. Those require pet insurance and auto insurance, respectively.
Second, while your standard policy usually covers 50% to 70% of your dwelling coverage, specific items come with coverage limitations and sublimits with your personal property coverage. For example, you could have $150,000 in personal property coverage, but only $1,500 of coverage for your jewelry. If someone steals $3,000 worth of jewelry, you’re only covered for the first $1,500. You’ll need to get special coverage for the rest.
Other items you may need additional coverage for include:
Third, I recommend conducting a property inventory of your personal belongings. A property inventory is a detailed written list of all your personal belongings in or on your property, in storage units, and safety deposit boxes. Be as detailed as possible, save any receipts you might have, and make sure you document everything digitally. Whenever you get something new, add it to your list.
Keeping a property inventory of your belongings can mean the difference between a meager reimbursement and a huge payout.
Personal Liability Coverage
Personal liability insurance protects you if someone gets injured in your dwelling, and usually covers everyone living on your property, including your kids and pets.
If your dog bites your neighbor, or your cousin slips and falls in your kitchen, personal liability coverage can help pay for their lost wages, medical expenses, and legal fees.
Personal liability limits generally start at $100,000. Many insurance companies offer liability coverage at $100,000, $300,000, and $500,000, with the option to buy more with an add-on, but these numbers fluctuate from company to company.
Here’s what’s included in personal liability protection, and what is not:
Injuries you cause (accidental)
Injuries you cause (intentional)
Damage someone else in your household causes
Injuries to someone within your household
Injuries caused by one of your kids or pets
Injures on your property
Damage on your property that also impacts other people's homes
Medical Payments Coverage
One aspect of personal liability coverage worth diving deeper into is the coverage of medical payments. This coverage pays to care for someone who gets injured on your property, and it doesn’t matter who’s at fault. It also covers you and anyone else living in your dwelling (including pets) if they get injured elsewhere.
The typical amount of coverage a standard homeowners insurance policy offers on medical bills is between $1,000 and $5,000.
What Isn’t Covered By Home Insurance?
Even the most extensive homeowners insurance policies don’t cover everything that could happen to your home. For example, if you set your house on fire, your insurance company won’t cover it.
Outside of intentional harm, most standard homeowners insurance policies exclude:
To get coverage for one or more of these items, you need to purchase separate coverage. In some cases, like FEMA-designated flood zones (areas the Federal Emergency Management Agency deems at “high-risk” of flooding), it’s a requirement.
Here are a few common endorsements you should consider purchasing to further protect your home.
Flood insurance covers most water-related damages done to your property. These can include a river that overflows its banks, heavy downpours that cause a drainage backup, and hurricanes.
There are two standard types of flood coverage:
While earthquakes can happen in all 50 states, earthquake insurance is usually only recommended for Western states and other areas experiencing frequent seismic activity. For example, Oklahoma has among the highest number of earthquakes in all 50 states, likely due to fracking.
Earthquake insurance policies pay for the repairs to your house and its attached structures, any personal items damaged or destroyed, and for your additional living expenses. Earthquake insurance doesn’t cover:
Other Popular Endorsements
Other common homeowners insurance endorsements include:
How Much Does Homeowners Insurance Cost?
The cost of your basic homeowners insurance coverage depends on many factors. The main ones include:
The average cost of home insurance by state varies substantially. For example, if you live in California, your average monthly premium for $250,000 in coverage is $85. In Oklahoma, it’s $293.
When you’re looking to get the best deal, there are several ways to lower your home insurance costs, such as shopping around and comparing rates, asking about discounts you may qualify for, and bundling your homeowners insurance coverage and other policies, like auto insurance. For example, Travelers Insurance offers their customers a multi-policy discount that saves them 12% on average when they also purchase car insurance and three additional policies.
Do your research, and find the best deal for what you need.
What Does Homeowners Insurance Cover? Final Thoughts
Homeowners insurance is all but required, but you shouldn’t think of it as a necessary evil. Your home insurance policy covers way more than just your home, and if something ever happens and you need to use it, you’ll be grateful that it’s there.