If you’re a homeowner, you likely have homeowners insurance. But how well do you know your homeowners insurance policy? Before you make a claim, it’s good to understand what your homeowner’s insurance policy covers and what it doesn’t.
Your homeowner’s policy will also cover liability for any injuries sustained on your property that isn’t covered by other policies, such as medical payments for someone who trips over an uneven sidewalk or is bitten by one of your pets.
Named-peril is relatively inexpensive and covers you for specific disasters, such as fire or hail damage.
All-risk insurance protects you against all possible perils (acts of God, man, or nature) for a higher price. If a company offers only one type of coverage, find out what perils aren’t covered before you sign up; depending on your location, flood coverage may be an extra expense to consider paying for when buying home insurance.
You can apply for a homeowners insurance policy as soon as you purchase your home, but it usually doesn’t kick in until after you’ve moved in. Many homeowners wait to insure their homes until a major purchase, like furniture or jewelry, is stolen or destroyed; during that time (which generally lasts about three months), you’re only covered by your homeowner’s policy for damage from floods and earthquakes. You should have enough coverage that you can rebuild your home if it were destroyed; experts recommend at least 10 times what it would cost to rebuild. It may also be wise to look into flood-insurance policies: if your area is particularly prone to flooding, buying both policies could offer extra peace of mind.
Most homeowner’s policies cover fire, wind, vandalism, and theft—the big disasters. But many perils go unnoticed until it’s too late. Make sure you know what is (and isn’t) covered so you don’t have to worry if an accident happens while your home is unoccupied. Don’t forget coverage for common things like medical payments and liability in case someone gets hurt on your property or you get sued because of an accident there. When figuring out how much insurance to buy, consider how much it would cost to replace everything in your home with new items of similar quality — not necessarily brand-new stuff but, say, comparable furniture from a secondhand store or vintage clothing.
In many parts of America, homeowners insurance is a requirement before you can even purchase a home. While it’s possible to opt out, as long as you have some sort of plan in place (such as renter’s insurance), there are a lot of costs associated with not having a homeowner’s insurance. For example, if your home is destroyed by fire or another natural disaster, not having a homeowner’s insurance could result in tens of thousands of dollars in repair and rebuilding costs for which you are personally responsible. In addition to covering financial losses resulting from accidents like these, some homeowners’ policies include coverage for vandalism and other malicious events.
• Personal property coverage.
• Liability coverage.
• Additional living expenses (ALE).
It’s important to understand how each of these works before deciding on a homeowners insurance policy that fits your needs.
(A) Personal Property Coverage: This covers your belongings in case they get damaged or stolen. It includes items such as furniture, clothing, electronics, and jewelry. You can also purchase coverage for collectibles, valuables, and other items that aren’t typically covered by a homeowners policy.
(B) Liability Coverage: This protects you from legal liability if someone is injured on your property or suffers property damage due to an accident caused by something that happens on your property.
(C) Additional Living Expenses (ALE): If you’re unable to live in your home due to a covered loss—such as fire, windstorm, or burglary—this will pay for temporary housing expenses while repairs are being made to your home.
Rates vary widely depending on where you live and what kind of policy you’re looking for. If your home is worth more than $250,000, insurers view it as a high-risk property and will charge you more. However, you can use your equity to lower premiums by taking out an insurance policy on a second property. If that isn’t an option, another way to reduce premiums is by increasing your deductible from $1,000 to $5,000 or higher. You’ll pay out of pocket for smaller incidents (such as breakage) but save on premium costs in return.
The majority of homeowners insurance policies do not cover floods and earthquakes. Only 15% of all homeowners policies provide flood coverage and 4% cover earthquakes. Even if you live in an area that isn’t prone to flooding or earthquake activity, it’s still important to know whether your policy will provide any coverage for these types of disasters. You never know when a tragedy could occur, so it’s best to be prepared ahead of time by ensuring you have adequate coverage. Flood and earthquake coverage are available as additional riders on most insurance policies at a very reasonable cost.