Understand What Homeowners Insurance Covers
As a new homeowner, youll want to know what homeowners insurance covers. A standard homeowners insurance policy includes:
- Dwelling:;Pays to rebuild the structure of your home if it is damaged by any cause, except problems that are specifically excluded such as floods.
- Personal belongings: Pays to replace or repair your personal belongings after a problem covered by the policy, like theft or fire. You can typically upgrade a policy to cover contents for any problem except those named as exclusions. This gives you broader coverage for your belongings.
- Liability insurance: Pays for medical expenses and property damage your household members cause to others. For example, liability can pay out if your dog bites someone or your child knocks a baseball through a neighbors window. Liability insurance also pays for a legal defense if you get sued over ;an injury or damage. Liability limits on homeowners insurance policies typically start at $100,000, but consider upping it to $300,000 or $500,000. Liability insurance should cover what you can lose in a lawsuit.
- Medical payments to others: Helps pay for minor injuries if a guest is hurt on your property. This is generally in small amounts of coverage between $1,000 and $5,000.
- Additional living expenses coverage:;This pays extra loss of use expenses such as hotel bills, meals and other costs if you cannot live in your home because of a problem covered by the policy, like a tornado or fire.
Insurance Options Beyond Default Limits
You may want to rejigger coverage to either fill in gaps or increase the coverage limits you have.
Natural disaster insurance.;If you live in an area thats prone to flooding, you may want flood insurance. In fact, a mortgage lender might require you to have it if you live in a high-risk area for flooding.
Theres also sinkhole;coverage and earthquake insurance;.
Sometimes youll need a combination of insurance types to be fully protected. For example, tidal waves can often follow earthquakes, but earthquake insurance doesnt cover flood damage.
Sewer backup. If a sewer backs up or your sump pump fails, water backup and sump pump overflow coverage pay for the cost of water damage. This insurance type might also cover water damage caused by tree roots growing in a sewer line.
Umbrella insurance.;While the liability coverage within a homeowners policy is a good start, it still might not be enough. If your insurance company limits the amount of liability coverage you can buy and your assets exceed that amount, you may want to purchase umbrella insurance;for;additional liability coverage.
You can typically purchase about $1 to $2 million dollars of umbrella insurance for about $380, according to Trusted Choice, an insurance group for independent agents.
Settling A Claim If You Have A Mortgage
If you have a mortgage, your home insurance policy will usually include a loss payee clause. A loss payee clause makes your mortgage lender your beneficiary. In case of loss or damage to your home, your insurance company will pay your lender up to the remaining balance of your mortgage when you submit a claim.
When you make a claim, your insurance company may, at their discretion, give the money to either:
- you, so you can fix your home when you submit a claim
- your lender, who would then give you the money for repairs or replacement after you submit receipts proving they were done
Recommended Reading: How Does Social Security Disability Insurance Influence Staffing
Damage To The Interior Or Exterior Of Your House
In the event of damage due to fire, hurricanes, lightning, vandalism or other covered disasters, your insurer will compensate you so your house can be repaired or even completely rebuilt. Destruction or mutilation from;floods, earthquakes, and poor home maintenance is generally not;covered and you may require separate riders if you want that type of protection. Freestanding garages, sheds or other structures on the property may also need to;be covered separately using the same guidelines as for the main house.;
Clothing, furniture, appliances, and most of the other contents of your home are covered if they’re destroyed in an insured disaster. You can even get “off-premises” coverage, so you could file a claim for lost jewelry, say, no matter where in the world you lost it. There may be a limit on the amount your insurer will reimburse you, however. According to the Insurance Information Institute, most insurance companies will provide coverage for 50% to 70% of the amount of insurance you have on the structure of your home. For example, if your house is insured for $200,000, there would be up to about $140,000 worth of coverage for your possessions.
If you own a lot of high-priced possessions , you might want to pay extra to put them on an itemized schedule, purchase a rider to cover them, or even buy a separate policy.
Do I Need Homeowners Insurance And When Should I Buy It
If you’re shopping for your dream home, you may have questions about homeowners insurance. Its another expense of home ownership, so its logical to ask the question: Do you need homeowners insurance, and if so, when in the house buying process do you buy it?
Here’s a list of frequently asked questions and answers to help you understand when you need to get homeowners insurance.
Recommended Reading: How To Obtain A Life Insurance License
Home Warranty Vs Home Insurance
Your home insurance policy won’t cover normal wear and tear or mechanical breakdowns. That’s precisely what a home warranty is for, designed to supplement your home insurance in case things go wrong around the house. For instance, if your air conditioning unit stops working, a home warranty plan can pay to repair or replace it. Home warranties cover nearly all home appliances and are purchased separately from your home insurance.
Why Do Lenders Require Homeowners Insurance
Lenders require homeowners insurance so that the property they have an investment in is fully covered against catastrophic damage. The lender also wants to make sure that, as the borrower, youâre financially capable of paying down the mortgage in the event that the home is destroyed.
If your home is wiped out in a hurricane and you donât have insurance, your mortgage obligation doesnât simply disappear â youâre still technically required to pay off the loan. But chances are you wonât continue to pay down the mortgage of a home that was destroyed, and foreclosure wonât be of much help for the lender as thereâs no actual home to repossess and sell. Thatâs why lenders require homeowners insurance prior to letting you take out a mortgage â the lender isnât only protecting their investment, theyâre also protecting you from yourself.
You May Like: Cmfg Life Insurance Company Rating
What Does Homeowners Insurance Cover
Standard homeowners insurance policies generally include six types of coverage.
Pays if you injure someone or cause property damage unintentionally or through neglect.
$100,000 to $500,000.
Pays to treat someone injured on your property, regardless of whos at fault. Also pays if you, a family member or a pet injures someone elsewhere.
$1,000 to $5,000.
What Is Vacant Home Insurance
To understand whether you need vacant home insurance, it helps to know what it is and when it may be necessary.;Vacant home insurance can be purchased as its own policy or as an add-on endorsement to an existing homeowners insurance policy. It is designed to protect homes that are vacant for an extended period of time. This is different from traditional homeowners insurance, which covers you for as long as you own and live in the home.
The amount of time required for a home to be considered vacant can depend on the insurance company. For instance, some insurance companies may deem a home to be vacant if no one lives in it for at least 30 days. Other insurers may extend this to 60 days or more before a home is considered vacant.;
Insurance companies distinguish between unoccupied homes and vacant ones. A home is considered unoccupied, rather than vacant, if your personal belongings are still inside and you could return to live in it any time.;
Don’t Miss: Does Parking Violation Affect Insurance
Mortgage Life Insurance V Level Term Life Insurance
It is important to note the differences between level term life insurance and mortgage life insurance to work out which will be more suitable for you.
|Type of life insurance|
|Mortgage/decreasing term assurance|
|Level term assurance|
How Much Life Insurance Do You Need
How much coverage you need is a big question. Some people don’t need any life insurance. Others need it to provide a million dollars or more in the event of their death.
For most people, the more assets you have, the less life insurance you need. But the higher your income, the more your family will need to replace if you die.
You may only need enough coverage to pay for medical and funeral costs. Or, you may want to have a big enough payout to pay off your mortgage, put your kids through college, and cover living costs for your family for a few years.
You may also have debts, like student loans or a credit card balance, that will need to be paid after you die. Life insurance can cover these as well. Before you buy a plan, think about what you need life insurance to do for you and your loved ones.
Don’t Miss: Is Trustage Life Insurance Legit
Know The Difference Between Actual Value And Replacement Cost
Your property depreciates over time. If it is destroyed in a covered catastrophe and has to be rebuilt, your insurance policy may cover either the actual cash value or pay you the full replacement cost. Most standard homeowners insurance policies provide the option to purchase either replacement cost value or actual cash value.
Typically, there is a certain limit to replacement cost value, and if rebuilding your house costs more than the limit, you may have to pay out of pocket. This is when two more options come into play: extended replacement cost value and guaranteed replacement cost value.
Extended replacement coverage pays to rebuild your house to its prior state even if the price exceeds the actual cash value of the property. There is a limit, but it is typically 50% more than the coverage amount.
Guaranteed replacement coverage pays to restore your property regardless of the rebuilding costs. Many companies will have an upper limit after which they will not offer guaranteed replacement cost. For example, some companies will not offer a guaranteed replacement cost option on homes exceeding $1 million in value.
If you need help determining your homes replacement value, your insurance agent can help. Most insurance companies offer tools to help calculate this value for policyholders.
Factors That Determine Homeowners Insurance Cost
How much you pay for insurance depends on a few different factors. Here are just a few of the most common considerations insurance providers use when they calculate your rate.
Condition And Age Of Your Home
Insurance companies;may charge higher premiums for older homes or;fixer-upper homes;that havent been well-maintained.
Insurance premiums vary widely by state. Expect to pay more for;homeowners insurance;if you live in an area thats prone to wildfires, flooding or other;natural disasters. On the other hand, you can expect to pay less if you live close to a police station or fire department.
Just like with a loan or credit card,;insurance companies;offer lower rates to people with high;. By taking some time to;raise your credit score, you can actually lower your premium.
Your;deductible;is the amount that you pay when you make a claim before your insurance kicks in and covers the rest of the bill. Youll pay more in premiums if you choose a lower;deductible.
Extra Structures On Your Property
The more structures you have on your property, the more of a risk you pose to;insurance companies. You may pay more for your insurance if you have a fence, tool shed or pool.
Some;insurance companies;won’t cover homes where certain dog breeds live. These can include pit bulls, German shepherds and rottweilers. Even if your;insurance company;doesnt ban certain breeds, they may still charge you more if you own an aggressive breed of dog.
Recommended Reading: Do Parking Tickets Affect Car Insurance
Do A Company Health Check
Investigate home insurance companies youre considering via their scores on the websites of the top credit agencies; and;those of the National Association of Insurance Commissioners;and Weiss Research. These sites track consumer complaints against the companies as well as general customer feedback, the processing of claims, and other data. In some instances, these websites also rate a home insurance company’s financial health to determine whether the company is able to pay out claims.
Your Hoa And Homeowners Insurance
If your new home is in a subdivision or planned community, you are likely required to pay a homeowners association fee. Also known as HOA fees, this money helps cover the upkeep and maintenance costs of the community where your home is located. Often included in HOA fees are your homes portion of an insurance policy for the community and/or complex.
As a community member, this HOA policy is partly your responsibility, but it does not cover the structure of your home or the belongings inside of it. To protect your new house from disaster, the HOA insurance is insufficient. It is important to protect your home with a personal homeowners insurance policy. A personal policy covers the physical structure of your home. Coverage may also be available for your familys belongings inside the home and outbuildings such as garden sheds.
Read Also: Do Parking Tickets Affect Credit
Proof Of Coverage Document
Your lender will also require proof of homeowners insurance, as well as any other type of insurance you may need before youâre able to close on the mortgage. Donât delay looking for coverage and potentially jeopardize your ability to close in a timely manner. Most lenders will require proof of homeowners insurance â also known as an insurance binder â anywhere in the days, and in some cases, weeks ahead of closing.
Finding The Homeowners Insurance You Need
There are a variety of costs that go along with homeownership and its common to seek ways to save money. Failing to purchase homeowners insurance, or letting your policy lapse, might save you a little money right now. Still, the long-term expenses related to potential damages that may occur are often more than homeowners can afford. Saving money on home insurance could lead to losing your home and your possessions. Further, it could lead to legal expenses you cant afford.
If you live in the Greater Boston area of Massachusetts and are considering buying a home, or you already own a home, its vital to understand the importance of homeowners insurance. LoPriore Insurance is an independent insurance agency dedicated to helping customers find insurance that fits your lifestyle. Get in touch;today to learn more about available homeowners insurance policies, find answers to your questions, or get a;quick quote;on the policy you need. Our agents are standing by to help you get the insurance policy that will provide you protection and peace of mind.
Don’t Miss: How To Obtain A Life Insurance License
Lots Of Things Just Won’t Be Covered
First-time home buyers are often surprised to find out what their policy doesnt cover, says Jen Horner, a Realtor with RE/MAX Masters in Salt Lake City. For instance, water damage from a pipe or other system that breaks inside the house is covered, but water coming from the outside will not be.
If the homeowers home is flooded because a lawn sprinkler broke or was left on, in most cases this is not covered, Horner says.
In general, events that are preventable by reasonable home maintenancemold, pest infestations, leaks from roofs worn by wear and teararent covered, either.
Depending on the issue, you may be able to buy extra coverage or a separate policy. Sewer backup coverage, to address a blockage in your sewer line, costs $40 to $100 a year, according to the Insurance Information Institute, an industry group. Flood insurance costs, on average, around $700 a year but can be purchased for far less in a low- to moderate-risk area.;
How Much Liability Insurance Do You Need
Youve got your home and personal belongings coverage figured out, so what else is there?
Homeowners insurance also protects you from incidents that happen anywhere on your property, including your backyard, garage, or shed. Specifically, personal liability insurance protects you if someone is injured anywhere on your property. ;
Lets say your kid has a friend over, and he slips in the backyard and breaks his wrist. Or your pet pooch gets a little snappy and bites a guest. Thanks to your personal liability insurance, you may be covered for legal fees, medical bills, and medical payments.
Note:Specific breeds that are considered high risk might not be covered, so if you have a pitbull or rottweiler, double check your policy. Bonus round? The last coverage in your policy is medical payments to others. If someone gets injured on your property, this coverage would pay medical bills up to $5,000 no matter whos at fault. This coverage is perfect for small claims, think stitches or minor injuries. Its intended to cover medical bills without having to go to court.
Purchasing a new home will be one of the most expensive and important decisions of your life, and making sure you have the right amount of coverage will give you the peace of mind you need to get on with your lifeworry-free.
Read Also: What Dental Insurance Covers Veneers