Homeowners Insurance Guide

If a disaster decimated your home and belongings today, would you be protected?

Whether your house takes a nasty hit from a hail storm, gets engulfed in flames, or is the unlucky target of thieves, you can ensure your assets are protected with homeowners insurance.

Purchasing homeowners insurance provides you with peace of mind, no matter what life brings.

But knowing where to begin in a sea of providers and plans promising the perfect coverage for you can be challenging.

We’re here to clarify your confusion and help you get the best coverage for your needs.

Read on to see what you need to know to make a smart purchase and get quotes on affordable home insurance.

Why You Need Homeowners Insurance

Life happens unexpectedly.

No one buys a home expecting it will be damaged or destroyed in the future, but being prepared in case it does is crucial.

Here are a few reasons you need to purchase homeowners insurance:

  • To repair damages incurred from natural disasters. If a tornado, hurricane, lightning, or hail strikes your home, you could be facing serious structural damage. And if a fire consumes your home, you could be at risk of losing everything. Homeowners insurance helps you repair, rebuild, or replace your home if it doesn’t weather the storm too well. Keep in mind floods and earthquakes may not be covered unless you have paid for additional coverages.
  • To replace your stolen possessions. A break-in is happening somewhere in the United States right now. By the time you finish reading the next few sentences, another will have occurred. Losing your cherished valuables is painful enough when they have sentimental value attached; there’s no need to hurt financially when something you love gets stolen.
  • To get a mortgage. If you need help financing your home (as most home buyers do), you need homeowners insurance. The majority of lenders require you to have at least some level of coverage to obtain a mortgage. In fact, your mortgage lender will probably be listed on your policy.
  • To shield you from liability. Accidents happen. And depending on who you’re dealing with, an accident which takes place at your home can have detrimental effects. Whether your neighbor slips and falls in your bathroom or your pup has an altercation with the mailman, you can rest easy knowing your legal expenses (or their medical bills) are covered.
  • To ease your mind. Hopefully, you will never have to deal with the loss of your home or valuables, but being prepared in case you do is well worth the cost. Like any insurance, purchasing a homeowners policy now means you can rest securely knowing you’ll be protected in the future.

What You Need To Know About Homeowners Insurance

When it comes to homeowners insurance, there are a number of terms to tackle.

Before we proceed to discuss your homeowners insurance options, it’s important to understand what we’re talking about.

Key Terms

Actual cash value: How much it will cost to cover your lost or damaged items, factoring in depreciation.

Additional coverages: If you’d like to purchase insurance beyond the standard against a particular item, you can get additional coverage as a rider to your policy.

Additional living expense: Reimbursement for costs on lodging after the event of a disaster.

Claim: Your petition for benefits/payment from your insurance company, according to the terms of your policy.

Deductible: What you pay out of pocket before your claim is processed and approved.

Endorsement: Added alteration to your initial coverage plan, also commonly known as a rider.

Exclusion: Item or event excluded from your policy’s coverage, noted in the plan at the time of purchase.

Liability Coverage: The part of the policy protecting you against injury or property damage to another individual at your hands.

Ordinance of Law Exclusion: Your insurer is not accountable for updating your home to meet new housing standards or codes, only for returning it to its previous state.

Peril: A defined risk for damage to your property, i.e. a tornado or fire.

Personal Property: Anything you can take with you, like furniture, jewelry, or electronics.

Premium: The price you pay for your coverage.

Real Property: Assets you can’t take with you when you go, like your house and land.

Replacement Value: Counter to actual cash value, replacement value assesses the cost of replacement or repair without depreciation.

What Homeowners Insurance Covers

Since you have an idea of the terms associated with homeowners insurance, let’s take a look at what your policy actually covers.

  • Your real property. Dwelling coverage protects your house and your land.
  • Your personal property. Items like jewelry, furniture, appliances, and electronics are commonly insured.
  • Additional living expenses. Any time a covered catastrophe occurs and you have to stay elsewhere, your hotel, apartment, or other rental expenses are covered.
  • Liability. Medical bills, legal expenses, and lost wages are costs you could be accountable for, all of which are covered by homeowners insurance.

What Your Homeowners Insurance Options Are

Beyond the basics, there are a number of policy types to choose from, as well as notable add-ons and limits to consider.

Let’s take a look at a few of the most popular policies to give you some insight.

Types of Policies

The HO-2 policy is the standard minimum plan accepted by mortgage lenders across the board.

The HO-2 is a named plan, meaning it gets you protection for only a list of named items.

With an HO-2, you get coverage for the following 16 perils:

  • Fire or smoke
  • Lightning
  • Hail or wind damage
  • Volcanic eruption
  • Explosions
  • Theft
  • Vandalism
  • Riots/ civil unrest
  • Vehicle
  • Aircraft
  • Falling objects
  • Extra weight from sleet, snow, or ice
  • Accidental release and overflow of water
  • Sudden or accidental electrical charge damage
  • Water damage from AC, heating, or plumbing problems
  • Water heater or similar pipe damage (burning, etc.)

What Isn’t Covered:

  • Flooding from anywhere other than your AC, heat, or plumbing, or slow leaks
  • Sewage back up
  • Rodent, bird, or insect damage
  • Earthquakes and landslides

The HO-3 is the most popular homeowners insurance policy on the market, and it’s easy to see why.

Rather than naming a list of perils you are covered for, the HO-3 is an open plan.

What’s Covered

  • Open plans lists exclusions, leaving all other perils wide open… to an extent.
  • If you have an HO-3 and your personal property gets damaged, you are covered for the 16 named perils mentioned above.
  • Your real property, however, is covered for all but a list of exclusions.

What Isn’t Covered

While the exclusions are a bit more extensive than those listed below, here are the main ones you might be concerned with:

  • Ordinance/ law
  • Earthquakes, landslides, and sinkholes
  • Water damage not covered in the HO-2
  • Power failure
  • Intentional loss
  • Neglect (on your part, to maintain possession of your home)
  • War
  • Nuclear hazards
  • Loss to property
  • Governmental action

The HO-5 extends your coverage even further.

With an HO-5, you get an open peril plan that applies to both your home and possessions.

You get the benefits of an HO-3 applied to your personal property.

Beyond the exclusions, the HO-5 is an excellent way to protect everything you own.

The main places you’ll be lacking coverage, again, are water damage and flooding.

The good news is you can purchase add-ons to include perils like flooding in your coverage.

Additional Coverages

You’ve probably heard insurance isn’t one size fits all, which is why many homeowners customize their policies with riders or floaters.

Say you have an expensive piece of jewelry and feel its worth exceeds your policy’s coverage.

You might want to consider purchasing a personal property floater, which allows you to add a certain amount to your premium to protect individual items.

Or if you just dropped $1300 on a new MacBook, you might want to put a little more money on protecting it.

The other place people typically spend more on additional coverage is natural disaster policies.

If you recall, both named peril plans and open exclusionary ones limit natural disasters.

For example, if you live in an area prone to earthquakes, you might add an endorsement with earthquake coverage to your policy.

Flooding is another natural disaster notably missing from common home insurance plans.

Fortunately, there are riders to secure you from flood damage.

Lastly, some homeowners purchase an umbrella policy to supplement their coverage.

Basically, umbrella insurance adds to your home and auto insurance to protect you from a whole host of problems.

So what all falls under the umbrella?

First, umbrella insurance can protect you from legal liability, including libel, slander, or false arrest or imprisonment.

In addition, umbrella insurance can boost your protection from people’s injuries or damage to their property (like a car, home, or possession) at your expense.

Research your insurance provider’s options to see what all coverage you can add to your plan.

What to Consider When You Shop for Homeowners Insurance

  • Limits: Read the policy’s terms closely to see how much they actually cover and carefully assess the value of your property and possessions. As far as possessions go, most policies cover them anywhere from one half to one-third of your home’s property coverage. If that amount isn’t sufficient, you may want to consider a floater.
  • Claims Process: The claim filing process can vary from insurer to insurer, even if they promise the same coverage. When do you get your check? Do you have to purchase a replacement to receive your reimbursement? What will you pay in deductibles? How long does the appraisal process take? All are important questions to ask your agent.
  • Inventory: You need to keep stock of everything you expect to be covered now. In the event of a catastrophe covered by your plan, you’ll want to save receipts to provide to your insurance company. Your careful record keeping will make the process run more smoothly and ensure you get your money. If you don’t know where to start organizing and cataloging your stuff, no worries. Rather than attempting it on your own and hoping for the best, download an inventory app. One popular app, Sortly, allows you to index your belongings with ease, taking and storing pictures, logging dates and receipts, and scanning barcodes. DreamVault and Encircle are also apps built to improve your home inventory taking. Give one a try!
  • Cash value or replacement value: You need to take a hard look at which type of reimbursement your insurance policy uses. Remember. Cash value factors in depreciation, whereas replacement value pays out what it would cost to replace the item with a comparable one on the market right now. Since cash value pays more, it costs more; however, the added expense is worth it when your policy covers depreciated items.

What to Do When You Buy Homeowners Insurance

1. Assess your needs. Look at your finances, see how much your home is worth, and take inventory of your possessions.

To decide how much homeowners insurance to purchase, ask yourself what it would cost to completely rebuild your house in the event of a fire or other disaster.

To determine that amount, look at both your square footage and current construction costs in your area.

How much do you want to invest in protecting your possessions?

Do you need to add to your coverage?

2. Purchase an adequate policy. Don’t automatically assume the initial replacement or cash value assessment from the insurance company will be substantial down the road.

A lot of homeowners find themselves needing more coverage when mayhem strikes, consequently paying more.

Be smart and consider purchasing an ordinance of law endorsement, disaster-specific riders, or floaters for your possessions if the coverage is limited.

You might pay more in premiums but less in the long run.

And if you raise your deductible, your premium cost decreases.

3. Streamline your homeowners insurance buying.

Not only can you take advantage of apps when you’re taking inventory, but also when you purchase and manage your policy and need to make claims.

One of the most innovative homeowners insurance providers on the market is Lemonade.

With Lemonade, you can handle all of your homeowners insurance needs within the app.

If phone calls and meetings with an agent don’t appeal to you, Lemonade might be an appealing option as a bot by the name of Maya builds your insurance policy.

Lemonade is quick, easy, and offers competitive rates on premiums.

It’s definitely worth getting a homeowners insurance quote from them.

4. Get quotes on homeowners insurance policies and providers.

While homeowners insurance might not be the most fiercely competitive, you should shop around!

You could end up saving upwards of a thousand dollars by doing your homework.

Insurance companies look at everything from your credit score to your property value to set your premiums.

And in some cases, you can save by bundling your home and auto coverage, which saves you even more money.

Bottom line

Don’t leave your future self in a bind.

The keys are knowing your needs, planning ahead, and shopping for homeowners insurance quotes to get the best deal.

Homeowners insurance is worth every penny, helping you protect yourself today in case disaster strikes tomorrow.

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About Jeff Root

is the owner of rootfin.com. He's an independent life insurance agent who has helped 1,000's of consumers purchase life insurance online and over the phone.

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