Homeowners Insurance

Buying a home is one thing, but maintaining it is a whole other matter. Most people can agree that buying a house can be the single largest purchase you can make, and making sure it’s well-taken care of, especially during accidents and emergencies, is no easy feat.

This is why it’s a necessity to have a homeowners insurance policy. It isn’t a luxury, it’s a necessity. It acts as a financial security blanket for you and your home against damage or theft. The right policy would also be able to shelter you from having to resort to your savings in the event that you need to rebuild your house after a fire, or repairs from storm damage.

In this article, we’ll discuss everything you should know about homeowners insurance– what it is, why you should have it, costs, and our recommendations.

What is homeowners insurance?

Homeowners insurance– also known as home insurance– is a type of insurance policy that provides financial protection to its policyholders in the event of something unfortunate happening to their homes and possessions.

Your home and personal belongings aren’t the only things it protects, though. Most standard policies would also be able to provide liability coverage in case someone gets injured while on your property, and decides to sue you or seek damages. Some policies also include a loss-of-use coverage– meaning, the insurance company will reimburse you for your stay at a hotel when you can’t stay in your home for some reason.

Do I need homeowners insurance?

Although the law does not require homeowners to have a home insurance policy, some banks do require it as a condition when applying for a mortgage, and virtually all of these companies will require their borrowers to have insurance coverage for the full value of a property.

Even if you do not have or own a house yourself, if you are renting, many landlords will still require their tenants to have some sort of insurance coverage. Although they do this to financially protect themselves, it’s still smart to have the protection that a homeowners insurance policy provides.

Having home insurance would also come in handy in the event that your house is involved in unforeseen events like burning in a fire, being destroyed due to natural disasters, and even theft. It is an inexpensive way to avoid having to pay out-of-pocket to rebuild or repair your home.

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What does homeowners insurance cover?

The most basic coverage that a homeowners insurance policy covers is usually your assets involved in unforeseen events. It helps cover damages to your property if it gets damaged or destroyed due to fires, explosions, hail, lightning, theft, and vandalism– even fallen trees.

In unfortunate events, a home insurance policy will pay for repairs done to your home or outbuildings– or in catastrophic cases, pay for the costs to rebuild them entirely. They also cover cases of theft and vandalism. Your personal possessions inside your property– like jewelry, furniture, and other valuables– are also covered.

In the event that someone gets injured in your home or inside your property, the insurance company would cover their medical expenses and legal fees if they decide to seek damages and sue you. This clause even extends to your pets. If ever your dog bites your neighbor, or your cat won in a catfight against your neighbor’s cat, your insurer will pay for your neighbor’s medical bills and vet bills.

Your home insurance policy would also reimburse you for your stay at a hotel if you can’t stay in your home due to it being involved in a fire– whether natural, like forest fires, or manufactured. It would even pay for your meal expenses.

You will typically need a separate policy to cover damage from flooding or earthquakes since standard homeowners insurance policies usually do not cover those. The coverage will vary based on the insurance company, where you live, and other factors. It’s best that you speak to your insurance provider to discuss your specific needs and what you want out of your policy, the price, and ensure that you have everything you want.

How much does a homeowners insurance policy cost?

The cost of a homeowners insurance policy would depend on a lot of factors, including what structures and items you want to be covered, where your property is located, the size of your property, and the amount of coverage offered. The crime rate around your neighborhood could also become a factor when determining how much you would need to pay for your insurance policy.

Some insurance providers also have the option to turn away potential clients. They could take a look at the current condition of your home, and if they decide they won’t be making a profit in insuring it, it would reduce the company’s interest to provide coverage. Other times they just increase your premium in order to meet their desired outcome. This also applies to homes that have had multiple claims in the past three to eight years, even if the previous owner of the home filed the claim and not yourself.

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Home insurance is not tax-deductible if the property stated in your policy is your primary residence. You can, however, take a tax deduction for any rental properties you own that does have an insurance policy in place. Depending on your policy, you might also be able to deduct a percentage if you work from home.

Choose the Best Policy for You

Although choosing the right home insurance policy you need can seem frustrating due to the many complicated and seemingly complex things involved, it’s actually a pretty straightforward process. Consider taking these steps before purchasing a homeowners insurance policy:

  1. Decide what you want your insurance to cover. Yes, a lot of standard homeowners insurance policies already cover the basics, but sometimes you may have other things you need to be covered, such as precious jewelry, artwork, and other valuable items. Other times you might need extra coverage if you have a pool or something else in your home that poses a risk of injury to people who visit your property.

Standard homeowners insurance policies also do not cover damages caused by floods or earthquakes, so you might look out for other providers who offer coverage for that. So ultimately before even purchasing a house, it’s best to know if it’s located in a flood or earthquake-prone area in order to find suitable insurance providers.

  1. Determine how much coverage you need. Take an inventory of the things inside and outside of your home and property in order to estimate the coverage you need. File your receipts if you have any, or if you don’t, start filing them as early as now. Then, calculate the cost it takes to rebuild or repair your home per square foot in case of a disaster.

You can decide how much coverage you need for your property by using this data. If you have no idea how to do any of these things, you can ask for help from a licensed insurance agent, licensed real estate agent, or even from the Insurance Information Institute.

  1. There are three options to choose from on how you want to be reimbursed when you make a claim– actual cash value, replacement cost, and extended replacement cost– so determine what you want from either of those.
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Actual cash value covers the cost of your property minus depreciation. Despite its name, the cash payment issued may be less than the actual cost to rebuild your home.

Replacement cost policies cover the actual cash value of your property without deducting depreciation. Since it does not factor in depreciation when it comes to calculating the insurance payout, most clients prefer this reimbursement option. It would allow them to repair or rebuild their home for the full cost of materials used that have similar quality. The premiums to this option, though, are a bit higher as compared to the actual cash value option.

Extended replacement cost is the most comprehensive type of reimbursement option. It serves as a buffer for inflation, meaning that the insurance company would pay for whatever it costs– even if it offers more than what you purchased– to repair or rebuild your home. The ceiling of this reimbursement typically ranges from 20% to 25% higher than your policy limit.

  1. Gather multiple quotes from multiple insurance companies. You will want an insurer that sells policies specific to what you need at an affordable price. To do this, it can be helpful to do research on the best insurance companies in your area, their policy coverage, and other things.

Next, you will have to list down the companies you’re interested in, and in most cases, they offer an estimating tool of some sort available for use on their websites. Use this to get an idea of how much it will cost you in monthly premiums depending on the coverage you need.

Lastly, compare the monthly premiums of the different companies to each other, making sure that they offer similar coverages. This will help you narrow down on what company to choose. Also, choose the company with a high financial strength rating from dedicated rating agencies, excellent reviews from clients, and one that allows you to file a claim or provides customer service anytime.

Alternatively, you can also use Commercial Loan TrueRate Services to get loans on your properties.