Buying homeowners insurance is a valuable way to protect your family. It could be stressful, or, you can arm yourself with knowledge that gives you the confidence to choose the right policy. I choose the latter! Here are the answers to all of your homeowners insurance questions…with zero judgment.
**This post contains affiliate links, which means if you click on a link and make a purchase, I may make a small commission at no extra cost to you.
I am fortunate to have unique access to someone who is a licensed insurance agent: my very own brother! He genuinely wants to help people protect their families, and that’s why he agreed to co-write this blog post. I wish he could be everyone’s personal insurance agent, but the next best thing is inviting him to share his knowledge about homeowners insurance here. I hope this information empowers you to make informed decisions for your situation.
I’m going to let him take it from here…..
*Disclaimer: This homeowners insurance post includes general information. It is not intended to be an official recommendation. Every person has unique needs that should be handled with individual conversations. The following information and examples are to encourage you to do your own research and advocate for yourself before buying homeowners insurance.
If you care about your family, your home and your possessions then YES, you need homeowners insurance. No matter how diligently you prepare for every potential event, you are not invincible. Here are some reasons why buying homeowners insurance is necessary and how it benefits you.
There are three components of protection that a homeowners insurance policy provides:
When you are buying a home, your mortgage company will need proof of insurance before they will finalize your loan. They want to know that their investment is protected until you have paid off your loan.
You might be renting and don’t even own the dwelling that you are currently living in. Your landlord will have insurance to protect the property. But if there is a fire, your landlord’s insurance policy will do nothing to replace your damaged or destroyed possessions. A renters insurance policy will protect your personal property and give you protection against liability.
The intent of homeowners insurance is to “restore what you had.” So the same rules of coverage apply for both your home and your belongings.
All personal property is protected against any type of covered loss. The common perils that are covered might include:
Liability would be considered any damage that you are responsible for.
For example, you neglect to clear the ice from the sidewalk in front of your home and someone slips.
Or your son hits a “home run”… through your neighbor’s living room window.
Two of the biggest liabilities are pets (for obvious reasons) and off-road/recreational vehicles/boats. Those “toys” are not covered on your auto policy, so it would be your homeowners policy that would protect you when you plow your dirt bike into the side of someone else’s truck.
This liability coverage follows you anywhere in the world. If you are vacationing in Paris and accidentally knock someone down the stairs of the Eiffel Tower, your homeowners policy will protect you. Crazy, right?
When buying homeowners insurance, your policy will specifically list what it covers against.
OR the policy will probably read something like: “Everything is covered except for…” and will provide a specific exclusion list. Here are the typical exclusions:
There are some “excluded” perils that you simply cannot get insurance for.
Others can be added to your homeowners policy, or may require a separate policy.
Flood insurance is only offered by specific carriers, so this is always a separate policy. If you live in a high-risk flood area, your federally- backed mortgage lender will require you to purchase flood insurance. Even if you are not in a high-risk area, it is a good idea to purchase coverage in the event of a flood. Almost a quarter of all flood insurance claims come from areas that are not identified as high-risk.
Earthquake insurance is usually available to add to your homeowners policy, but it has to be specifically requested. There are some restrictions about the timing of when earthquake protection can be added.
For example, it cannot be added until 30 days after the last 4.0 magnitude within 100 miles. So if you live in California like Mel, you might have very small windows during which you are able to purchase earthquake insurance.
Be sure to be informed on the terms of these additional policies. They typically do not offer the same degree of coverage that a “normal” homeowners insurance policy covers. For example, the replacement percentages may be considerably lower than other perils.
Ask friends and family for personal recommendations. There are plenty of online options, but there really is value in having a personal agent who lives in your community with you. If you are in the process of buying a home, your mortgage lender can offer you a list of names. (Although by law, they cannot recommend any specific one and cannot receive compensation from an insurance agent.)
Your agent will ask you a lot of questions about the details of your house to help determine the replacement value of your home. There is a big cost difference between builder’s grade and custom. These are just some of the things your agent might ask you about:
Your insurance agent will provide you with his or her recommended amount of coverage for the estimated cost to rebuild your home. There are some state minimums and calculators that are used to help determine this. Beyond that, it is the homeowner’s choice as to how much coverage they are comfortable with. Typically you can go higher than these recommendations, but not lower.
If you have any high value personal items, you might want to identify them specifically in your policy. You might also choose to add additional coverage for these items.
Any other pictures or inventory of items are not necessary to provide to your insurance agent. However, they could be very helpful to remember what you had, should a loss occur. If you need ideas of what is worth documenting, check out the Info Hub. It is an incredibly valuable resource to use alongside your insurance policies.
At least once per year, revisit your home value with your agent. If there are any significant changes to your home or personal property, it is your responsibility as the policyholder to inform the agent. If you do this via phone call, be sure to also follow up with an email so that the communication is documented somewhere.
How much your homeowners insurance costs will depend on the limits that you choose as the policyholder. The higher the coverage limits you choose, the higher your premium will be. Here is how the coverages are estimated or calculated.
The amount of coverage that your agent will recommend is based on the current projected rebuild cost of your home. It is NOT based on market value because that factors in the cost of the lot that your home is on, which would not be affected by insurance. You can always choose to adjust the coverage amount. Oftentimes homeowners want to increase their coverage, especially if they have a custom home.
The amount of personal property coverage is usually a percentage of the replacement value of your home: typically somewhere between 50%-70%. If you have high value personal items that do not necessarily require specific identification, you may want to increase your personal property coverage.
An example of maybe a less obvious reason for increasing your coverage:
If you have been following Mel’s advice, you might be extremely prepared for any type of emergency. Your insurance agent has no idea how much money (and time!) you have invested into things like…
You might consider increasing your coverage to ensure replacement of those items.
It is common to have set limits of $100k, $300k, or $500k for liability coverage. Your agent is going to ask you what level of coverage you want. It comes down to the amount of assets you have and the amount of protection you desire.
Questions to ask yourself when making this decision:
Remember, your ATVs, boat, and other toys are not covered by your auto policy. So if you are a weekend warrior, you should probably be considering a higher limit. And even if you have zero pets, zero off-road toys, and a depressing net worth, liability coverage is REQUIRED. You do not have the option to opt out of it completely.
Your homeowners insurance deductible is usually a dollar amount. The most common deductibles are $500, $1000, or $2500.
Some companies may offer a percentage option of maybe 1%. The less the insurance company has to pay out, the less they will charge you for coverage.
If your goal is a lower premium amount, then you would want to choose a higher deductible. It is structured that way because you are absorbing more of the replacement cost in the event that you have a claim.
With a high deductible, you are also less likely to submit a claim for something minor.
For example: If your deductible is $2,500 and the cost to repair the flooded laundry room is $2,500, you would not be submitting an insurance claim.
It’s also worth noting here that with some companies, you might only have to pay one deductible in a situation that involves both your home and your vehicle. For example, if you had a house fire when your car was parked in the garage. This is the case for the company that I personally work for.
Most insurance companies will also offer you a discount on your policies when you combine your homeowners and auto insurance.
There is just not a one-size-fits-all homeowners insurance policy. And there is beauty in that!
And the good news is, a homeowners insurance policy is not set in stone.
So if this post has made you aware of some options that you didn’t previously know about, then advocate for yourself! Call your agent and make some updates to your homeowners insurance.
Or ask me for a recommendation… I might know a good agent!
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