What You Need To Know About Homeowners Insurance
What is homeowners insurance and how does it work?
If something happens to your home that damages or destroys all or part of the property, you can file a claim to pay for the damage and help rebuild the structure. Your insurance will also cover theft of your personal property, including if that happens to something of yours during travel. Without homeowners insurance, 100% of the cost to cover such things will come right out of your pocket! You can find our recommended provider for homeowners insurance on our preferred vendors page.
What exactly does homeowners insurance cover?
It provides coverage for a range of risks that you may face as a homeowner. Risks that can otherwise be financially challenging to cover out of pocket! The exact amounts you are covered for will vary based on several factors such as the limits on your policy, your deductible, and whether you choose coverage for the cash value (meaning the depreciated value) or the replacement value of your home and property. But the overall coverage should include:
This includes any damage to, or destruction of, your home and/or other detached structures. If anything happens to your home, shed, garage, etc. and it is covered by your policy, you will receive compensation based on the specific limits you agreed to. Hazards such as vandalism and severe storms are generally covered, but other hazards, such as earthquakes and floods, are excluded and require their own insurance policy. Make sure you check over your policy for exclusions!
Loss of Personal Property
This will generally include theft or damage of your personal property, up to the specific limits set by your policy. Damage caused by events like flooding, earthquakes, and personal negligence are typically excluded. If you own more valuable property than most, such as art or antiques, you may need special endorsements (“riders”) on your policy to make sure their value is covered.
If you or a family member causes some form of accident resulting in injury or property damage at your home, your homeowners insurance can cover you. Regardless of whether the accident results in property repairs or medical care, you will generally be covered up to your liability limits. There are exclusions, however, so make sure you fully understand your liability coverage!
Added Living Costs
If something happens to your home and you are unable to live there while repairs are being made, your homeowners insurance can pay for other living arrangements until you are able to go back. This is an optional coverage on some policies, so make sure you fully understand the coverage provided in yours!
How much homeowners insurance do you need?
That is up to you, but you should, at the very least, have these areas covered:
- Structure of the home: Insure your home for how much it would currently cost to rebuild it from scratch. This would be the replacement value. Make sure you have an accurate estimate on the value, as what you think you could sell the home for is not a great indicator of replacement value!
- Personal belongings: Depending on the specifics of your policy, it should cover your personal belongings at 50-70% of your home’s value. If you have many valuable items like art or antiques, this might not be enough. Be sure to make an inventory of your personal items to see how much coverage you need, and insure them at replacement cost. You may then need to purchase a “personal articles policy”, or additional “rider” that can provide you with more complete coverage.
- Liability: Possibly the most important area to cover, your liability will handle any injuries or accidents on your property (within reason, of course). Most policies will include anywhere from $100,000 to $300,000 of liability coverage. However, because of the high cost of personal injury lawsuits, you may be inclined to purchase greater liability insurance that covers up to $500,000. You may also consider purchasing an umbrella liability policy, which can add another $1,000,000 in liability coverage. This type of policy is an especially good idea for those with certain liability concerns or more valuable than average property to protect.
Is homeowners insurance included in my mortgage?
Automatically, no. You should research and find the policy that will best suit yourself and the home you’re looking to buy prior to getting a loan! However, after you have a policy and have been approved for a loan on your home, you can set up an escrow to make payments easier.
With an escrow, you pay your mortgage company the insurance with your mortgage payment rather than paying it directly to the insurance company. They will then hold your payments until the annual premium is met, and send the entire premium to the insurance company on your behalf.
This has become common practice as not only does it make it easier dealing with just one company, but it allows you to pay your premium in smaller payments rather than in one lump sum!
We hope that this guide will help you determine the appropriate type of homeowners insurance for your situation. If you have any questions about homeowners insurance that we did not cover, or would just like to chat about your home buying goals, give us a call at 303.847.1868 or schedule your free home buying consultation online!