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Hunter Insurance Agency

20 things you might now know about homeowners insurance.

I got homeowners insurance in a blur. My mortgage lender told me a policy was the last thing needed to fully approve our home loan and in a (totally unnecessary) panic, I called my car insurer, gave them my soon-to-be address, and got coverage. Shortly after closing, a giant packet came in the mail, detailing a policy I had already paid for.

This isn't the best way to buy insurance — one of the many lessons I learned as a first-time homebuyer — but closing on a home is stressful. I'm probably not the only person to purchase a homeowners policy without a plan.




To help you and future shoppers out, here are 20 questions about homeowners insurance you might be too embarrassed to ask.

1. What is homeowners insurance? Homeowners insurance is a form of property and casualty insurance. It primarily covers your home and the stuff inside of it in the event of theft or some disasters.

2. Wait ... some disasters? Yes. Homeowners insurance commonly covers these perils: fire, windstorm, hail, lightning, smoke, explosion, theft, vandalism, riot and vehicle collision. It commonly excludes — i.e. doesn't cover earthquakes, flood, power failure, war, nuclear explosion, neglect, ordinance of law (locally forced repairs) or intentional damage. Learn more about what your homeowners insurance covers (and what it doesn't).

3. But that list includes some of the worst natural disasters, no? Well, if you live in an area that's susceptible to the perils most likely to occur — namely, earthquakes and floods — you can get coverage for them, usually separately. (In fact, if you live in a flood zone, you need to buy flood insurance to get a mortgage. Federally regulated lenders are legally required to make people living in high-risk flood areas buy a policy.)

4. Fair enough. Is homeowners insurance required by law? No. Unlike car insurance, states don't mandate you insure your home. But, if you're financing a house, your mortgage lender will likely require you to get some. They don't want to lose money on their investment. And, honestly, neither will you.

5. Why do I need homeowners insurance? Because houses are expensive and disasters don't discriminate or only do damage. In 2017, a series of wildfires destroyed thousands of California homes, while Hurricane Harvey forced 30,000 people into temporary homes.

6. So homeowners insurance will replace my house if it's destroyed? Here's the short answer: If your house is destroyed by a covered peril, a standard homeowners policy will go a long way toward repairing or rebuilding your home.

7. What's the long version? A homeowners insurance payout is dictated by the fine print of your policy. For starters, you'll have coverage limits. If your house itself (or "dwelling") is insured for up to, say, $350,000, you won't get more than that to replace it. And you could get less, depending on the type of homeowners insurance you have.

8. What types of homeowners insurance policies are there? There are two big ones we're referencing here: A replacement cost homeowners insurance policy pays claims based on the cost of rebuilding or repairing your home at the time it is damaged or destroyed. An actual cash value homeowners insurance policy pays claims after accounting for any depreciation in your home's value.

9. Which one is better? Replacement cost homeowners insurance will cover more damage to your property and possessions. Actual cash value homeowners insurance is cheaper, but it usually won't pay out enough to fully repair or rebuild a damaged home.

10. How much homeowners insurance do I need? We go through the details of how much homeowners insurance you need here, but it really depends on how much home you're buying, where you're buying it, the condition of your property and how much stuff you have ...

11. How much stuff I have? Yes, because homeowners insurance provides coverage for your possessions, too, just like renters insurance. You'll have a total coverage limit for personal belongings and individual limits for high-priced items, like jewelry. The rule of replacement cost vs. actual cash value insurance also applies.

12. Huh. What else does homeowners insurance cover? In addition to property and personal belongings damage, standard homeowners insurance covers liability in the event someone injures themselves at or around your house and loss of use, which is a fancy way of saying it'll pay for for temporary housing while your house is in repair. Separate coverage limits apply to each category.

13. OK, but, really, how much homeowners insurance do I need? Ideally, you should base your property coverage limits on how much it would cost to rebuild your home. That's sometimes the house's current market price, but it could climb higher. You should consider insuring over market price if your house is older, you've got other structures on your property (like a shed or four-car garage), or construction costs in your area run high, for example.

14. What about my personal belongings limits? Coverage for your stuff and temporary relocations are generally based on a percentage of your property's coverage limits. Standard policies usually cover personal belongings at about 50% of your dwelling limit and loss-of-use at about 20%, according to the National Association of Insurance Commissioners. You might need more coverage if you have pricey possessions.

15. What about my liability limits? Liability limits start at $100,000, but most homeowners should have between $300,000 and $500,000 worth of liability coverage to protects their assets in the event of a lawsuit.

16. Can you explain liability coverage some more? Sure. The liability portion of your homeowners insurance kicks in if someone is accidentally injured on or around your property. Say they slip on an icy sidewalk or your dog bites them. So long as there are no exclusions (which is possible, particularly with certain dog breeds), liability insurance will pay for that person's medical expenses and any court costs you incur if they sue. Liability insurance also covers property damage caused unintentionally by you or your family members, like if your kid breaks a neighbor's window while playing catch in your yard.

17. Got it. How much does all this homeowners insurance cost? Again, how much homeowners insurance costs depends on how much coverage you need. However, a standard policy costs homeowners about $1,100 a year, according to the Insurance Information Institute. (We can help you compare homeowners insurance quotes here.)

18. How can I lower the cost of homeowners insurance? You can opt for a higher deductible — that's the amount of money you'll have to pay out of pocket before your insurance kicks in. But less risky ways to save include bundling your homeowners insurance, usually with your car insurance or asking if you qualify for any discounts.

19. What homeowners insurance discounts are there? Sometimes homeowners insurance companies offer lower rates to first-time homeowners or first-time customers. You might also score a more affordable policy by adding certain security features to your home, like an alarm system. You can learn about more obscure homeowners insurance discounts here.

20. One more thing: What's an umbrella policy — & why? Umbrella policies offer extra liability coverage on top of what's already covered by your standard homeowners insurance or car insurance policy. Umbrella coverage starts at $1 million. Our agents generally recommend an umbrella policy to people who have more than $500,000 in assets since that's typically where your standard homeowners policy will cap coverage. But you should also consider umbrella coverage if you're at risk of multiple lawsuits, like if you have a few teen drivers in the house or you own multiple properties, especially rentals. You can learn more about umbrella insurance here. Equally confused about how life insurance works? No worries. We have a dedicated team of life insurance experts who've already answered the 20 questions about that coverage you're too embarrassed to ask right here.

Disclaimer: Blog content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you. Originally written and published by Jeanine Skowronski

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