Homeowners insurance provides vital financial protection for your most valuable assets, such as your home and personal belongings. Regrettably, many people treat shopping for home insurance as an afterthought rather than a crucial decision. This negligence can leave homeowners exposed to potential financial devastation in the event of a disaster. This guide is here to ensure you understand everything you need to know when shopping for home insurance so that you can make the best choice to safeguard your interests.
What Does Homeowners Insurance Cover?
When considering homeowners insurance, it’s essential to grasp the key coverages it offers:
Dwelling coverage is the primary aspect of home insurance. It encompasses the protection of your home’s structure, including walls, floors, roof, as well as built-in appliances and attached structures like garages, porches, or decks. If your home sustains damage due to a covered event, you will only need to pay your deductible, and the insurance provider will cover the rest, up to the dwelling coverage limit.
Personal Property Coverage
This coverage extends to the contents of your home. It safeguards your personal belongings in case of theft, damage, or destruction due to covered events. This includes items like furniture, clothing, electronics, and more.
Other Structures Coverage
Other structures coverage ensures the protection of structures on your property that aren’t physically connected to your house, such as fences, gazebos, or detached garages. Typically, the policy limit for other structures coverage is around 10% of your dwelling coverage limit.
Loss of Use Coverage
This coverage helps cover additional living expenses if you are unable to live in your home due to a covered event, such as a fire or tornado. These expenses can encompass hotel bills, groceries, and laundry costs.
Personal Liability Coverage
Personal liability coverage comes into play when you are legally responsible for causing bodily injury or property damage to someone else. For example, if your dog injures someone while you’re out hiking, this coverage can assist in paying for legal expenses, medical bills, and other damages, up to your coverage limit.
Medical Payments Coverage
This type of coverage takes care of medical expenses for guests who are injured on your property, regardless of fault. It helps cover medical bills, ambulance fees, and related expenses.
How to Shop for Homeowners Insurance
- Determine Your Coverage Needs
The first step in shopping for home insurance is calculating the amount of coverage you require. Underinsuring your home can be financially disastrous in the event of a total loss. At a minimum, aim for coverage that can fully rebuild your home, known as replacement cost coverage. The replacement cost depends on your home’s size, features, and the local construction costs. In cases of rising building costs or inflation concerns, consider extended replacement cost coverage, which adds an extra percentage above your dwelling coverage limit. Some insurers even offer guaranteed replacement cost coverage, covering the full cost of rebuilding your home, regardless of the expense.
Additionally, assess your personal property coverage needs, usually 50% to 70% of your dwelling coverage limit. Conduct a home inventory to determine if this amount suffices. Be aware that many policies cover personal property based on “actual cash value,” meaning you’ll receive the property’s value at the time of the loss. To avoid this, consider upgrading to replacement cost coverage for your belongings.
Lastly, ensure you have sufficient personal liability coverage to safeguard your assets in case you are held responsible for injuries or property damage.
- Evaluate Add-Ons and Endorsements
Consider additional coverages to fill gaps not included in standard home insurance policies. Some common add-ons include:
- Scheduled Personal Property: This offers extra coverage for high-value items like jewelry, art, and electronics that might surpass your standard policy limits.
- Sewer or Water Backup Coverage: Protects against damage caused by water backing up into your home through pipes or drains, or due to sump pump failure.
- Equipment Breakdown Coverage: Covers sudden breakdowns of HVAC systems and large appliances, such as a fridge compressor failure.
- Home Business Endorsements: Provides extra coverage for home-based businesses, surpassing standard home insurance policy coverage.
- Consider Flood and Earthquake Insurance
Most home insurance policies don’t cover damage from floods or earthquakes. You’ll need separate policies to handle these risks:
- Flood Insurance: This covers damage caused by various flooding scenarios, such as river or lake overflow, storm surges, heavy downpours, or snowmelt. It’s available through the National Flood Insurance Program (NFIP) and private insurers.
- Earthquake Insurance: Designed for damage caused by earthquakes and earth movement. In some states, you can purchase standalone earthquake insurance or add extra coverage as an endorsement. In California, home insurance companies are required to offer earthquake insurance.
- Obtain Quotes from at Least Three Companies
Once you’ve determined your coverage needs and desired endorsements, gather quotes from multiple insurance companies. You can obtain quotes online, directly from companies, or with the assistance of an independent insurance agent. Be prepared with the following information:
- Insurance history, including past claims and the name of your most recent insurer.
- Personal information for all household members.
- Type of residency (primary, secondary, etc.).
- Any business conducted on your property.
- Details about your home, including square footage, construction type, renovation history, and security features.
While getting quotes, you can select your home insurance deductible. Raising your deductible can reduce your premium, but ensure you can afford it in case of a claim. Compare quotes based on similar coverage limits and deductibles, as they can vary between companies.
- Purchase Your Home Insurance Policy and Review It Closely
After comparing quotes and selecting a policy, it’s time to finalize the details. Sign the paperwork and make your initial payment, which may be rolled into your closing costs if you’re purchasing a house.
Upon signing, your insurer will provide a home insurance declarations page, summarizing crucial policy details. It’s essential to read your entire policy to understand its coverage limits and exclusions. Keep a copy in a safe place for reference when filing a claim.
By following this guide, you can make an informed decision when shopping for homeowners insurance, ensuring that your valuable assets are adequately protected.