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The Basics Of Homeowners Insurance

7-minute readSeptember 21, 2020

Life has a way of throwing us our fair share of curveballs from time to time. When we’re thrown a pitch we can’t handle, it’s extremely helpful to have a safety net. Various insurance policies like those for health and life insurance can be key components in any plan to deal with the unexpected.

When it comes to protecting your home and personal belongings, a homeowners insurance policy can play an important role in providing you with that extra sense of security that you can handle whatever challenges come your way in homeownership. This article will go over the basics of homeowners insurance so that you have a full understanding of what it is and what you should look for.

What Is Homeowners Insurance?

Homeowners insurance is a policy that covers interior and exterior damages to your personal property, as well as losses and damages of your personal assets or belongings. It also provides liability coverage against lawsuits for injuries sustained on your property.

Homeowners insurance provides coverage that pays out in the event of covered damage to your property and insures against losses. It also provides personal liability coverage in certain circumstances. Homeowners insurance may be referred to as home insurance depending on where you look.

What Does Homeowners Insurance Cover?

Homeowners insurance typically covers issues related to the following three categories: property damage, stolen or damaged personal items and personal liability.

Property Damage

Several different types of property damage are covered under a homeowners insurance policy typically. Here are some common clauses:

  • Wind And Hail: Wind and hail damage is covered under a typical homeowners insurance policy. This includes damage from tornadoes. Because of this, coverage in areas of the country that are particularly impacted by tornadoes during certain seasons (think of the Midwest) can be more expensive.
  • House Fires: Fire and smoke damage are also often covered under home insurance policies. If you live in or near a wooded area with increased chances for wildfires, you may have to pay for a separate fire hazard insurance given the increased risk of damage to your property.
  • Lightning: If your house is struck by a bolt from the blue, you’d be covered. Depending on the terms of your policy, electronics damaged by the lightning would probably also be covered either under property damage or protection for personal assets, which we’ll get into below.
  • Frozen Plumbing: When your plumbing freezes, you are at risk for having the pipes crack and burst. If this happens, homeowners insurance covers it.
  • Appliance-Related Water Damage: If you have a washing machine leak or something like the hot water heater going awry, that would typically be something that’s covered.
  • Falling Objects: If a falling tree or other implement of unexpected destruction should destroy your garage, you have coverage in most cases.
  • Damage Related To Theft: If in the commission of a theft, the perpetrator damages your property by some means of forced entry such as a broken window or a damaged lock, homeowners insurance typically covers the damage.
  • Temporary Housing Expenses: After your property is damaged, the purpose of homeowners insurance is to repair it such that it’s at least as good as it was before the damage. Because you can’t always live in your house while it’s being worked on, temporary living arrangements are also covered under the typical policy.

Stolen Or Damaged Personal Property And Assets

Another thing that may be included in a good homeowners insurance policy is coverage for stolen or damaged personal property and assets up to a certain amount. Among those things covered by homeowners insurance under this type of provision are the following:

  • Furniture
  • Appliances
  • Clothing
  • Jewelry

If your policy features personal property protection, you often have coverage up to a certain dollar amount. Beyond that, you can choose to buy riders if you have high value items like jewelry whose value would be beyond what is covered by the standard limits.

As a rule, it helps to inventory the things you have because if you make a claim your insurer will likely want to see receipts. There are apps that you can get for your smartphone that will help you by allowing you to go around your home and match receipts to pictures.

Personal Liability

The last thing covered by homeowners insurance is personal liability coverage up to given limits. This helps cover the following:

  • Medical Expenses Related To Injury On Your Property: If a neighbor or friend slips on a patch of ice and breaks their hip on your driveway, they’ll have to deal with medical bills, among other things. Personal liability coverage helps with this.
  • Injury Or Property Damage Caused By You Or A Member Of Your Household: If, in the course of chopping wood, you accidentally put a wayward log through your neighbor’s basement window, homeowners insurance would cover the damage. Personal liability coverage is also helpful if your dog bites someone.
  • Lawsuits Related To Injury Or Property Damage: If you have someone sue you related to an injury or property damage, homeowners insurance can help cover your legal expenses.

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What Does Homeowners Insurance Not Cover?

While homeowners insurance covers a variety of situations, coverage isn’t all-encompassing. Here are some common situations in which you may not be covered or may need to purchase additional hazard coverage.

  • Flood Damage: While providing protection against water damage in many situations, it’s important to realize that homeowners insurance doesn’t usually cover natural flooding. For that, you’ll need a separate flood policy. These can be purchased through private insurers or the National Flood Insurance Program. Flood coverage is nearly always mandated by your mortgage lender if you live in a hurricane zone or a floodplain.
  • Wildfires: If you live in or near a forest, you may have to purchase additional wildfire hazard insurance due to the increased risk of fire damage.
  • Earthquake Damage: If you live along a fault line, you’ll need to purchase additional hazard coverage to cover rebuilding in the event of an earthquake.
  • Pet Damage: Your homeowners insurance won’t cover furniture and other damage that’s caused strictly by your domesticated pets.
  • Infestations: If you have damage caused by termites, cockroaches or rats, among other pests, homeowners insurance usually doesn’t cover this.

How Do I Get Homeowners Insurance?

As a condition of getting a mortgage, you’re required to have homeowners insurance. Because of this, there are generally two ways to get homeowners insurance.

The first way to do this is to shop around and get the best deal based on the kind of limits you want and other coverage terms you’re looking for, as well as the annual premiums. The only stipulation here is that you have to have at least enough coverage to cover the full replacement value of your home, in many cases according to the terms of mortgage lenders and investors. This allows everyone to protect their investment in the home.

If you don’t want to shop around, your lender can buy insurance for you. This is called force-placed insurance, but you don’t get a say in the level of coverage or the premiums at that point.

When you close on your home, your mortgage lender will typically require that you pay between 6 months and a year of homeowners insurance premiums in advance. After that, your homeowners insurance payments are divided into monthly increments and put into an escrow account to be paid off when the premium comes due.

What Is The Average Cost Of Homeowners Insurance?

According to the most recent available data from the Insurance Information Institute for 2017, the average annual premium for homeowners insurance was a little more than $1,200. However, several factors play into the cost that differ from property to property.

  • Home Value: If your home is of higher value, it’s going to cost more to insure. This is due to the relative cost of replacing damaged portions with materials of the same or greater quality.
  • Location: If you live in a state like Florida where there’s a history of crazy weather events or in the Midwest with tornadoes, you’ll likely pay a higher premium than someone living in North Dakota where they don’t have these things happen as frequently. Additionally, sometimes state regulations about what insurance does and doesn’t have to cover play a major role in insurance premiums in your state. The number of claims in an area also has an impact.
  • Credit History: Insurance is all about judging risks. One way to do that is to look at your credit score. Insurers consider this important because it helps give them some idea of your ability to pay back your premiums.
  • Age And Condition Of The Home: A home that is older or in worse shape is at a higher risk of needing repairs or incurring future damage. This will cause your premiums to be higher.

How Do I Get A Homeowners Insurance Quote?

If you’re looking for homeowners insurance, you can either shop with an insurance agent or make phone calls. Additionally, most insurance companies now have free insurance quotes right on their website homepages based on information you provide about your property.

How Can I Find The Best Homeowners Insurance For Me?

In determining the best insurance policy for you, it’s important to consider several factors. Among these should be the types and level of coverage you need along with your budget. Shop around to get the right price. Feel free to speak with a financial advisor to determine the best coverage for you given your situation.

Bottom Line

Homeowners insurance is designed to cover you in the event of property damage as well as provide insurance for stolen or damaged property and also give you the resources if someone suffers injury or property damage because of you.

While it covers many things, you may need hazard insurance for items like floods, wildfires and earthquakes. You can shop for homeowners insurance on your own or get it through your lender. The cost of homeowners insurance can vary greatly based on factors like your location, credit history and the condition of your home. While you can get an insurance quote online, it’s often helpful to talk to a financial advisor about the coverage that might be best for you based on your situation.

Now that you know more about homeowners insurance, check out some other articles on the home buying process.

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