Homeowner’s Insurance: Covering the Unexpected

Homeowner’s insurance is a type of property and casualty insurance that protects your home and personal belongings from unexpected events such as fire, theft, vandalism, or natural disasters. It also covers your legal liability if you or a member of your household causes injury or damage to someone else’s property or person.

Homeowner’s insurance is not mandatory by law, but it is often required by lenders if you have a mortgage on your home. Even if you own your home outright, it is a wise investment to have homeowner’s insurance to safeguard your most valuable asset and avoid financial hardship in case of a loss.

What does homeowner’s insurance cover?

A standard homeowner’s insurance policy consists of six main coverages:

• Dwelling coverage: This covers the cost of repairing or rebuilding your home’s structure, including the walls, roof, windows, foundation, plumbing, electrical, and HVAC systems. It also covers attached structures such as garages, decks, or porches.
• Other structures coverage: This covers the cost of repairing or rebuilding detached structures on your property, such as sheds, fences, gazebos, or guest houses.
• Personal property coverage: This covers the cost of replacing your personal belongings, such as furniture, appliances, clothing, electronics, jewelry, or artwork. You can choose between actual cash value (ACV) or replacement cost value (RCV) for this coverage. ACV pays you the depreciated value of your items at the time of loss, while RCV pays you the full cost of buying new items of similar quality and type.
• Loss of use coverage: This covers the additional living expenses you incur while your home is being repaired or rebuilt after a covered loss. This may include hotel bills, rent, food, transportation, or other costs that exceed your normal expenses.
• Personal liability coverage: This covers the legal expenses and damages you are responsible for if you or a member of your household causes bodily injury or property damage to someone else. This may include medical bills, lost wages, pain and suffering, or repair costs.
• Medical payments to others coverage: This covers the medical expenses of guests who are injured on your property, regardless of who is at fault. This is a no-fault coverage that pays up to a certain limit per person per incident.

The amount of coverage you need for each component depends on several factors, such as the value of your home and belongings, the level of risk you are comfortable with, and the requirements of your lender or association. You can adjust your coverage limits and deductibles according to your needs and budget.

What does homeowner’s insurance not cover?

Homeowner’s insurance does not cover every possible peril that could damage your home or belongings. Some common exclusions are:

• Floods: Flood damage caused by heavy rain, storm surge, melting snow, or overflowing rivers is not covered by homeowner’s insurance. You need a separate flood insurance policy to protect your home and belongings from flood damage.
• Earthquakes: Earthquake damage caused by ground movement, shaking, or cracking is not covered by homeowner’s insurance. You need a separate earthquake insurance policy or endorsement to protect your home and belongings from earthquake damage.
• Mold: Mold damage caused by moisture accumulation, poor ventilation, or lack of maintenance is not covered by homeowner’s insurance. You may be able to get limited coverage for mold damage if it is a result of a covered peril, such as a burst pipe or fire.
• Wear and tear: Damage caused by normal wear and tear, deterioration, or aging is not covered by homeowner’s insurance. You are expected to maintain your home and belongings in good condition and repair any issues promptly.
• Intentional acts: Damage caused by intentional acts of you or a member of your household is not covered by homeowner’s insurance. This includes vandalism, arson, fraud, or criminal activity.
• Government actions: Damage caused by government actions such as war, nuclear hazard, confiscation, or eminent domain is not covered by homeowner’s insurance. You cannot claim compensation for losses caused by these events.

These are some of the most common exclusions in a standard homeowner’s insurance policy. However, there may be other exclusions depending on your policy terms and conditions. You should read your policy carefully and understand what is covered and what is not.

How much does homeowner’s insurance cost?

The cost of homeowner’s insurance depends on several factors such as:

• Location: The location of your home affects the likelihood and severity of certain perils such as fire, theft, windstorm, hail, or flood. The more prone your area is to these risks, the higher your premium will be. The location also affects the cost of labor and materials for repairing or rebuilding your home.
• Home value: The value of your home affects the amount of dwelling and other structures coverage you need. The higher the value of your home, the higher your premium will be. You should insure your home for its full replacement cost, not its market value or purchase price.
• Personal property value: The value of your personal property affects the amount of personal property coverage you need. The higher the value of your belongings, the higher your premium will be. You should make an inventory of your belongings and estimate their value to determine how much coverage you need.
• Deductible: The deductible is the amount you have to pay out of pocket before your insurance kicks in. The higher your deductible, the lower your premium will be. However, you should choose a deductible that you can afford to pay in case of a loss.
• Coverage limits: The coverage limits are the maximum amounts your insurance will pay for each component of your policy. The higher your coverage limits, the higher your premium will be. However, you should choose coverage limits that are adequate to cover your potential losses.
• Coverage options: The coverage options are the additional coverages or endorsements you can add to your policy to enhance your protection. Some common coverage options are replacement cost value for personal property, water backup, identity theft, or scheduled personal property. The more coverage options you add, the higher your premium will be.
• Discounts: The discounts are the reductions in your premium that you can get for meeting certain criteria or taking certain actions. Some common discounts are bundling, loyalty, claim-free, safety features, or smart home devices. The more discounts you qualify for, the lower your premium will be.

The average cost of homeowner’s insurance in the United States was $1,249 per year in 2018, according to the National Association of Insurance Commissioners¹. However, this may vary widely depending on your state, city, neighborhood, and individual factors.

How to shop for homeowner’s insurance?

Shopping for homeowner’s insurance can be a daunting task, but it is also an important one. You want to find a policy that provides adequate coverage for your needs and budget, as well as a reputable and reliable insurer that will handle your claims fairly and promptly.

Here are some steps you can take to shop for homeowner’s insurance:

• Compare quotes: You should compare quotes from at least three different insurers to find the best deal for your situation. You can use online tools or agents to get quotes from multiple insurers. You should compare not only the price but also the coverage, exclusions, deductibles, limits, options, and discounts of each policy.
• Check ratings: You should check the ratings and reviews of each insurer to assess their financial strength, customer service, claims handling, and customer satisfaction. You can use sources such as A.M. Best², J.D. Power³, Consumer Reports⁴, or Better Business Bureau to find ratings and reviews of insurers.
• Ask questions: You should ask questions to clarify any doubts or concerns you have about each policy or insurer. You should ask about the policy details, claims process, payment options, cancellation policy, and renewal policy. You should also ask for referrals from friends, family, or neighbors who have experience with each insurer.
• Review policy: You should review the policy carefully before signing it and make sure you understand what is covered and what is not. You should also check for any errors or omissions in the policy information and correct them as soon as possible. You should keep a copy of the policy and any related documents in a safe place.

Conclusion

Homeowner’s insurance is a valuable protection for your home and belongings from unexpected events that could cause significant damage or loss. It also covers your legal liability if you cause injury or damage to someone else.

Homeowner’s insurance covers six main components: dwelling, other structures, personal property, loss of use, personal liability, and medical payments to others. However, it does not cover everything and has some common exclusions such as floods, earthquakes, mold, wear and tear, intentional acts, and government actions.