Here’s what you need to know if you’re in the market for homeowners insurance coverage to protect your biggest investment - your home.
The law doesn’t require home insurance. However, you’ll have a hard time coming up with good reasons not to insure.
That's because homeowners insurance protects your most valuable assets. This includes the structure of your “dwelling” (which could be a house, townhouse, condo, or co-op). And your belongings and possessions.
Home insurance protects you in other important ways, too. It provides money for living expenses if you’re forced out of a damaged or destroyed home. It also includes liability protection.
Only people who pay for their homes in cash or those that have paid off their mortgage can avoid home insurance.
Pretty much everyone else must insure their homes, as most mortgage lenders require it.
That’s why you should know as much as possible about homeowner’s insurance coverage.
Homeowner’s insurance policies typically cover the following:
Your home and "structures"—this includes plumbing fixtures, electrical wiring, and heating and permanent air-conditioning systems inside your home. It also includes external ones like fences, garages, gazebos, and sheds.
Your Stuff—Clothes, electronics, furniture, and the like are included here. So are less obvious items like plants, shrubs, and trees. Bonus: these are protected even when they’re not on your property. For example, when they’re in your car or with you at work or on vacation.
Your insurance company will repair or replace all of the above if they’re stolen, damaged, or destroyed by:
Or any disaster listed in your homeowner’s policy
Note: disasters like floods and earthquakes aren’t usually covered by standard homeowners insurance. However, many companies will sell you earthquake coverage as a separate policy or as an endorsement to your homeowner’s policy. The National Flood Insurance Program and a few private insurers offer flood coverage.
Standard homeowners policies also:
You can supply your home with extra protection from flood and earthquake damage with additional policies. You can also bolster the coverage that your home insurance provides.
For example, insurers typically pay up to $2,000 for antiques, electronics, jewelry or silverware. What if your items cost more than $2,000 to replace? We recommend purchasing a scheduled personal property endorsement or rider to insure them for their full, appraised value. (Personal property replacement cost endorsements or floaters are another option here.)
You can also buy personal umbrella liability insurance to raise the limits of your liability coverage and protect yourself against claims of libel or slander. Rates and coverage vary so shop around and get quotes from a number of homeowners insurance companies.
Read “Special Insurance Riders for Valuable Items” to learn more.
Here are the most common homeowner’s insurance forms:
Basic Form (HO-1)—this protects your home from the following disasters but is no longer available in most states:
Broad Form (HO-2)—this covers every disaster included in the “Basic Form” plus a few others including:
Special Form (HO-3). The most popular homeowners insurance policy because it provides people with the broadest coverage
Note: if you own a multi-family home, you can add an endorsement to your “Special Form” policy to cover risks related to having renters live with you.
If you own a condo or co-op or rent a home, you should check out these policies:
After selecting a homeowner’s insurance policy, you must choose a level of coverage.
The two main options are:
Read “Actual Cash Value vs. Replacement Cost” to learn more.
A: In theory, no. However, if you have a mortgage, your lender will probably require it.
If your home is located in an area prone to flooding, your lender is likely to force you to buy flood insurance. (The same is sometimes true for earthquake coverage in at risk regions.)
Co-op and condo boards often require tenants to have homeowners insurance.
A: Create a photographic or video inventory of your possessions. This will help you decide how much coverage you need. It will also protect you if belongings are stolen, lost, damaged, or destroyed.
Read “Create an Inventory for Homeowners Insurance Claims” for more information.
A: A lower deductible will mean higher premiums, while a higher deductible will mean lower premiums.
If you’re looking to save money, consider a higher deductible. Just make sure you can afford to pay it should you need to file a claim.
A: For starters, you should know that different insurers charge different premiums for similar sorts of coverage. That’s why you should shop around and get quotes from multiple home insurance companies.
Premium costs are based on many factors. They include:
A: Some homeowner’s insurance policies cover some business uses.
Many such policies cover computers used for business purposes. Also, most provide a limited amount of liability coverage for specific instances. For example, caring for a friend’s children as long as you aren’t paid for that activity.
If you aren’t sure if your homeowner’s policy covers a particular business use, ask your agent.
A: If your goal is to buy a townhouse as opposed to a condo, co-op, or freestanding home there are options for an individual homeowners policy. Or you can turn to an association master policy.
Mobile homes with wheels usually require a certain form of car insurance rather than homeowners insurance.
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