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What Is Homeowners Insurance?
Homeowners insurance is an insurance policy that combines various personal insurance protections, which can include:
Loss or damage to your home.
Loss or damage to its contents.
Loss of your use of the home.
Loss of other personal possessions.
Homeowners insurance also offers personal liability coverage in case someone is injured on your property, or if you are found responsible for damage to another person's property.
While coverage and costs will vary among plans, most homeowners insurance policies cover four main events: fire, theft, wind damage, and water damage (excluding flooding).
Homeowners insurance is typically required if you have a mortgage on your home. Even if you own your home outright, it's still a good idea to have this coverage to help protect your investment and belongings.
What Does Homeowners Insurance Cover?
Homeowners insurance offers financial protection for named perils on your property.
What are they? Named perils are specific events that are covered in your homeowner’s policy. These include fire, wind, water, theft, and vandalism.
Your policy will cover damage to your personal property, dwelling, or other structures you own. It will also pay for repair costs or provide you with a place to live temporarily or permanently if your property is uninhabitable.
Depending on your policy, it can also cover personal liability and medical costs related to injury or death on your property.
What Are the Types of Homeowners Insurance?
Homeowners insurance is necessary to protect your property and finances, but how do you know which is the right coverage for you?
These are the five types of homeowners insurance you can buy:
Broad form (Form 2) covers the dwelling, other structures, personal property, personal liability, and medical payments. Broad form policies only cover named perils in the policy, which means it only covers explicitly mentioned events in your contract.
Special form (Form 3) covers damage to the dwelling, other structures, personal property, personal liability, and medical payments. Special form policies take an "all perils" approach. This means your policy will cover most damages or losses, unless they are expressly excluded.
Comprehensive form (Form 5) provides the most coverage, allowing for additional named coverage for possessions on top of the coverage offered in Special Form 3.
Modified coverage form (Form 8) is insurance for older homes, especially ones that pose more risk for homeowners insurance companies. Keep in mind that with an older home, there’s a risk of having a rebuild value that significantly exceeds the home's market value.
Renters insurance (Form 4) covers personal property and liability for renters. It's one of the most important types of coverage to ensure you are covered even if you don't own the property. It can also offer owners liability coverage if someone gets hurt on their property.
When you are getting a mortgage on a house, your lender may require hazard insurance. But what is hazard insurance and how is it different from homeowners insurance? Turns out, hazard insurance is a subcategory of most homeowners insurance policies.
Ownership of historic homes has become increasingly popular in the U.S. over recent years. However there are some special considerations to keep in mind when it comes to homeowners insurance for a historic home.
37% of renters have renters insurance, according to the Insurance Information Institute. While that may not seem like an issue, consider that 95% of homeowners have a homeowners insurance policy.
What Isn't Covered by Homeowners Insurance?
Purchasing homeowners insurance is one of the most important things you can do to protect your home. However, it’s important to understand what your policy does and does not cover.
Most policies will exclude coverage for certain types of damage, such as floods and earthquakes. But, you can purchase additional coverage through riders or other policies if you live in a high-risk area.
Other standard exclusions include mold, fungus, and general wear and tear on your property.
In addition, coverage may also be excluded for specific items, such as jewelry or artwork. It’s important to read your policy carefully and discuss any questions or concerns with your agent.
Make sure you are aware of the risks when buying a house in a disaster area. Learn the steps to take to protect the home and get the appropriate insurance.
Most homeowners will experience at least one denied claim in 10 years of owning a home - don't let these be it.
The typical homeowners insurance policy isn't enough to protect you from certain natural disasters, including earthquakes. If you live in an area where earthquakes are common, you'll definitely want earthquake insurance as a crucial addition to your insurance policy.
Is My Homeowners Coverage Enough?
Understanding the details of your homeowners policy and how much coverage you have is crucial.
To estimate how much homeowners insurance coverage you need, multiply the home's square footage by the local building costs per square foot in your area.
Take an inventory of all your possessions, including brands, model names, and serial numbers, where relevant.
Try to be exact as possible, as insurance companies tend to lowball particular possessions, such as tech and certain high-cost items.
This will help estimate how much coverage you need and, in case of a claim, it will provide a better replacement value estimate from your insurance company.
A rule of thumb is to ensure that you have enough coverage to repair or replace your home and everything in it after a total loss.
Other points to remember:
When searching for a policy, consider a replacement cost policy rather than an actual cash value policy.
A replacement cost policy will consider the coverage to make repairs or replace the home at its current value, whereas a cash value policy factors in deprecation, age, and other factors.
Some lenders only require enough coverage to pay off the mortgage, but in most cases, this is not enough to replace the home and your possessions.
Remember that rebuilding costs tend to increase over time. Improvements to your home, and increased labor or material costs may require more coverage.
Creating a home inventory allows you to help replace items in the event of theft or natural disaster. You can purchase the amount of insurance you need and file a claim more efficiently when you have a home inventory. Here is how to make a home inventory.
Additional Living Expense, ALE, coverage pays for some costs that you might incur if a disaster makes your house impossible to live in. It typically provides coverage for the cost of finding temporary relocation such as a hotel or rental and any other related costs.
How Do I File a Homeowners Insurance Claim?
When a disaster strikes, you must make an insurance claim as soon and thoroughly as possible. It may seem overwhelming but the sooner you start, the better.
1. File a police report if needed. In the event of vandalism or theft, you must file a police report. Make sure all names, including those of any co-homeowners, get recorded in case anything else happens.
2. Notify the insurance company. Reporting requirements vary by company, but it's critical to contact your insurance company or agent as soon as possible to begin the claims process. Most businesses will let you file a claim online or over the phone.
Remember that you’ll need to act quickly to ensure your home is restored to an inhabitable condition as soon as possible.
3. Make repairs where possible. To avoid further damage, begin repairs as quickly as possible. Most companies allow this and will refund you later, so get started now. Keep receipts if you need reimbursement for your time or materials in case they are required during an inspection. You should also take detailed photos of the damage before starting any work.
4. Document your claim. Include all damage, stolen items, and anything else in the claim, and document everything by taking detailed photos or videos of the damage. Systematically work from room to room if needed. Compile a list of the approximate value of each item and use a home inventory list to keep track of everything.
Knowing what other homeowners have experienced can help you to more proactively protect yourself, your loved ones and the property and possessions that make your house a home. We review the most common homeowners insurance claims below and look into ways that some of these events might be avoided or their effects mitigated.
Changing your homeowners insurance may offer you lower rates or updated coverage. You can also take a step further and switch insurance companies, even with an open claim. Find out how to navigate this process and the reasons you may wish to switch providers.
How Long Does Homeowners Insurance Take to Pay Out?
Most homeowners insurance claims take a few weeks to pay out, but in some cases it can take up to a year or longer, depending on the complexity of your claim.
To help your claims process go as smoothly as possible, include as much documentation as possible, including photos and videos of the affected areas. Include a replacement cost estimate, serial numbers, and copies of any police or fire reports.
File your claim as soon as possible after the damage occurred and write down the names of the insurance agents you speak to.
What Does Homeowners Insurance Cost?
Homeowners insurance costs are calculated based on various factors, including the level of risk an insurer is taking on, local building costs, and the value of items in your home.
A good rule of thumb is that older homes are more expensive to insure than newer homes, and the bigger the home, the more expensive it will be to rebuild. Generally, expect to pay around $100-$200 per month for insurance coverage.
If your home is in an area prone to potentially destructive natural weather phenomena, your premiums may be higher.
If you live in an area prone to earthquakes or floods, additional riders may be worth looking into for total coverage of your home.
If you purchase a home in an area with a high crime rate, you can also expect higher premiums.
Purchasing additional items like furniture or electronics can change the cost of your premiums if you want them covered. Swimming pools, trampolines, and ponds increase the risk of being liable for injury, which can increase the cost of your policy.
Top Tip: Deadbolts, security cameras, and fire alarms can reduce your insurance costs as they assist in preventing crime and vandalism.
Maintaining a good credit score is also essential, as insurers will look into your credit history when determining your monthly premiums.
How Do I Lower My Homeowners Insurance Premiums?
Homeowners insurance premiums are costly when you first enroll in a plan. However, there are plenty of ways to save some money on insurance in the long run.
Increasing your deductible can reduce your premium by about 25% in some cases.
Upgrading your older roof to withstand heavier rainfall and wind can help reduce your risk and, therefore, your premium.
Adding security features like doorbell cameras, alarm systems, fire alarms, and carbon monoxide detectors can reduce the cost of your premium.
Home and auto bundles are an increasingly popular option to help reduce the cost of your home and car insurance.
Exploring your insurance options by comparing multiple companies and making a pros and cons list can help you get a good deal without compromising your coverage requirements.
Making renovations can provide quite a few benefits. Renovations on your home can have a positive effect on your homeowners insurance rates and coverage.
A homeowners insurance policy is a vital piece of making sure your home is protected but it doesn't mean you need to pay a significant amount of money for it. There are key ways to lower your home insurance costs, saving you money in the long run.
Many insurance companies offer savings when you bundle your home and auto policies, but does it really save you money? Depending on your situation, it may or may not make sense to look at bundling.
Tips for Choosing Homeowners Insurance
If you’re looking for homeowners insurance, here are a few things to consider:
Compare statewide costs and insurers
Research the average cost of homeowners insurance in your state, county, and cities in your area.
Take note of what companies offer coverage in your area, and look at their financial ratings. These scores are given to a company on their ability to pay out an insurance claim.
Check customer reviews and complaints, and make sure you are going with a company that meets your standards of customer service.
Look at the claims response
Another important consideration is how fast your preferred homeowners insurance provider will process claims. If you ever need to submit a claim, you’ll want an insurance company that has an easy claims process and fast turnaround times.
Go through online reviews and check how long the company states it will take to process a claim and how long other customers have reported it taking.
Use this information to figure out if your preferred homeowners insurance provider is the right fit for your financial situation.
Understand Coverage and Limits
Even though a company with a low annual premium may look enticing, the cheapest price often comes with limitations to coverages. Make sure to speak to a live agent and understand exactly what is or isn't covered in the policy you buy.
Get Multiple Quotes
We recommend getting at least three to five quotes from different companies before you make a purchase.
Look at companies you’ve used in the past, especially when you bundle a home and auto policy. You may be able to get a discounted rate.
We’ve ranked the Best Homeowners Insurance Companies of 2022 to help you find the right coverage.
If you're interested in buying homeowners insurance, get a quote directly from PolicyScout's partners or talk to one of our agents today.
What does home insurance cover?
Am I required to have home insurance?
Technically, no. You are not legally required to have homeowners insurance however, if you have a mortgage on your home then your lender will most likely require you to have some homeowners insurance coverage in order to be approved for the loan.
How much home insurance coverage do I need?
What factors can affect my home insurance premiums?
How can I lower the cost of my home insurance?
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