Homeowners Insurance 101

By on August 14, 2018

Whether you are a first-time home buyer or moving into a new home, chances are your home is your single most expensive purchase and monthly budget expense. As your most valuable investment, your home needs to be protected. Few homeowners take the time to read their policy, however, knowing what is covered and what’s not can make all the difference when disaster strikes.

The purpose of homeowners insurance is to cover the costs of repairing or replacing your home in the event that it is damaged by specific disasters such as fire, theft, storms, faulty household systems or appliances, riots, volcanoes, vehicles, or aircraft. Know which risks you want homeowners insurance to cover, and make sure that you get the type of homeowners insurance that covers those risks.

What is Covered?

A typical homeowners insurance policy covers dwelling, liability, personal property and loss. Dwelling covers damage to your home and outbuildings such as detached garages or sheds. Be sure to enroll in automatically increasing coverage or review your policy with your insurer to make adjustments as your home’s value goes up.

Personal property covers your household items such as furniture, clothing and appliances. You will need extra coverage for special antiques or expensive items.

Liability coverage will protect you from financial loss if someone is injured or their property damage while at your home. You will also have coverage for medical payments to people injured on your property or injuries away from home you are deemed responsible for (such dog bites).

And finally, you will have ‘loss of use’ coverage to reimburse your living expenses if your home is not inhabitable during repairs. Typically this coverage provides up to 20% of the total your home is insured for, but you can get higher limits.

Understanding Your Homeowners’ Insurance Policy

How Your Insurer Determines Your Premiums

The insurance company will review several factors before presenting you with a homeowners’ policy and premium rate. Here are just a few ways they might determine the amount you pay to protect your home.

  • Recent Claims in the Neighborhood – Insurance companies will pull a recent list of claims made in your neighborhood to see if your home is in any regular danger; for example, a high rate of burglaries or wildfires. Less claims in your area the better.
  • The Value of the Home – Your insurer can write a policy for the replacement value of your home or its actual cash value. Replacement cost coverage protects you from inflation in home-repair costs and is often required by mortgage lenders. The actual cash value insures your home for its current value and usually cost less than the replacement-cost value for all but the newest homes since homes depreciate over time from age and use.
  • Safety Measures to Protect the Home – Installing fire detection, sprinkler, and theft-deterrent systems can help to reduce the possibility of an accident occurring on your property and lower your premium.
  • Your Deductible – A deductible is the amount you pay before the insurer begins to pay your claim. Share the risk with your insurer by raising the amount you intend to pay; as a result, the insurer is likely to offer a lower premium.
  • Claims Made by You – If you are renewing a homeowner’s insurance policy and have made several claims, you should expect to pay a higher premium. In extreme cases, insurance companies may decide against renewing a policy.

6 Basic Types of Homeowners Insurance

  1. Coverage A: Damage to House
    Covers damage to the house. The face amount of the policy is the most you will receive if your house is totally destroyed. This value is determined by your actual or replacement-value cost.
  2. Coverage B: Other Structures
    Covers damage to other structures on the property, such as a detached garage, shed or fencing.
  3. Coverage C: Personal Property
    Covers damages or loss of personal property – household contents, computers, refrigerators and other personal belongings used by you and your family.
  4. Coverage D: Additional Living Expenses
    Covers additional living expenses up to the stated limit to continue your normal standard of living when the house cannot be occupied due to a covered loss.
  5. Coverage E: Comprehensive Personal Liability
    Covers personal liability to protects you against claims when someone has an accident on your property.
  6. Coverage F: Medical Expenses
    Covers medical expenses when a person has insures an injury occurring on your property or, if caused by you, a member of your family, or your pets – regardless of legal liability.

Be sure to read your policy carefully to see which perils are covered and which ones are excluded. Damage from storms, lightning, fire, and smoke is generally covered in a basic homeowner’s insurance policy, but damage from earthquakes or floods is generally excluded. These perils and other natural disasters often need a separate policy or policy endorsement.

What is Not Covered?

  • Damage caused by earthquake, floods, land or mudslide, tornados and other specific natural disasters
  • Theft of high-priced personal property such as furs, jewelry or antique collections
  • Mold
  • Damage or loss connected to a home business or business property stored on the premises
  • Construction expenses required to meet building codes
  • Automobiles, personal watercraft or other motorized vehicles unless they are used on premises only for maintenance purposes
  • Water damage or property damage caused by lack of routine maintenance and upkeep
  • Intentional acts by the homeowner to damage the property

Ask your agent or insurance company about special coverage that may be available for an additional premium.

Additional Coverages You May Want to Purchase

  • Valuables & Special Asset Coverage
  • Guaranteed Replacement Cost Coverage
  • Personal Property Extensions
  • Additional Liability
  • Flood Insurance
  • Earthquake Insurance

By becoming familiar with your homeowners insurance policy, you will be sure to have the coverage you need when you need it.

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About Scott Ho

FSN insurance and retirement journalist - Planning for your retirement or understanding your insurance needs can be confusing and difficulty. Scott knows these tasks can seem daunting. He offers his experience to make choosing insurance coverage and planning for your golden years a successful endeavor. Connect with Scott at !

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