If you’re a homeowner, one of the most important things you can do is protect your investment. And that’s where homeowners insurance comes in.
But what is homeowners insurance, exactly? And how does it work? In this beginner’s guide, we’ll walk you through everything you need to know about homeowners insurance, from what it covers to how to choose the right policy.
What is Homeowners Insurance?
Homeowners insurance is a type of insurance that covers your home and personal property against damage or loss. It typically includes coverage for damage caused by events like fire, theft, and weather-related incidents like wind, hail, or lightning. It also covers liability, which means you’re protected if someone is injured on your property and sues you.
There are several different types of homeowners insurance policies, but the most common is a HO-3 policy. This type of policy covers your home and personal property against all risks, except for those specifically excluded in the policy.
What Does Homeowners Insurance Cover?
Homeowners insurance typically covers the following:
- Dwelling coverage: This covers the cost of repairing or rebuilding your home if it’s damaged or destroyed by a covered event.
- Personal property coverage: This covers the cost of replacing your personal belongings if they’re stolen, damaged, or destroyed by a covered event.
- Liability coverage: This protects you if you’re sued for injuring someone or damaging their property.
- Additional living expenses: This covers the cost of living elsewhere while your home is being repaired or rebuilt after a covered event.
- Medical payments: It pays to treat someone who is injured on your property, regardless of fault. It also pays if you, a family member, or your pet injures someone outside of your home.
- Loss of use: Aids in the payment of temporary living expenses while your home is being repaired.
What Doesn’t Homeowners Insurance Cover?
While homeowners’ insurance covers a lot, there are some things it doesn’t cover. For example, most policies don’t cover damage caused by floods or earthquakes. You’ll need a separate policy for those types of events.
Additionally, homeowners’ insurance typically has limits on coverage for high-value items like jewelry or artwork. If you have items like these, you may need to purchase additional coverage.
Levels of Homeowners Insurance Coverage
There are three distinct levels of coverage.
Actual monetary value
After depreciation, actual cash value covers the cost of the house plus the value of your belongings (i.e., how much the items are currently worth, not how much you paid for them).
Cost of Replacement
Replacement value policies cover the actual cash value of your home and possessions without depreciation, allowing you to repair or rebuild your home to its original value.
Guaranteed Replacement Cost/Value
This comprehensive policy pays for whatever it costs to repair or rebuild your home, even if it exceeds your policy limit. Certain insurers provide extended replacement coverage, which means it provides more coverage than you purchased, but there is a cap; typically, it is 20% to 25% higher than the limit.
How to Choose the Right Homeowners Insurance Policy
Choosing the right homeowner’s insurance policy can be tricky, but there are a few things you can do to make the process easier:
Determine Your Coverage Needs
Before you start shopping for insurance, you’ll need to determine how much coverage you need. This will depend on factors like the value of your home and personal property, as well as your level of risk.
Once you know your coverage needs, it’s time to start shopping around. Be sure to compare policies from several different insurance companies to find the best coverage at the most affordable price.
Read the Fine Print
When you’re comparing policies, be sure to read the fine print carefully. Look for any exclusions or limitations that may affect your coverage.
Consider The Deductible
The deductible is the amount you’ll have to pay out of pocket before your insurance kicks in. Make sure you choose a deductible that you can afford to pay if you need to file a claim.
Ask About Discounts
Many insurance companies offer discounts for things like bundling your homeowner’s insurance with other types of insurance, installing security systems, or having a good credit score. Be sure to ask about any available discounts that could lower your premium.
How to File a Homeowners Insurance Claim
If you need to file a homeowners insurance claim, the process may seem overwhelming at first. But it’s actually quite simple:
Contact Your Insurance Company
As soon as possible after the damage or loss occurs, contact your insurance company to start the claims process. Be sure to have your policy number and a description of the damage or loss ready when you call.
Your insurance company will likely ask for documentation to support your claim. This could include photos, receipts, or estimates from contractors.
Meet with the adjuster
Your insurance company will send an adjuster to inspect the damage or loss and assess the cost of repairs or replacement.
Receive your Payout
If your claim is approved, your insurance company will issue a payout to cover the cost of repairs or replacement, minus your deductible.
How Are Home Insurance Premiums Calculated?
Each of the elements used to determine home insurance prices rates your likelihood of experiencing an insured loss. The location of your home, its replacement cost, the age of the plumbing and electrical systems in the building, the state of the roof, the distance from a fire station or a fire hydrant, your claim history, and your insurance history are some of the elements that affect the cost of your home insurance.
Factors Affecting the Cost of Homeowners Insurance
Insurers may use a variety of factors to determine your risk profile as a homeowner. A risk profile simply expresses your likelihood of experiencing a covered peril and filing a claim.
Continuous Property Insurance
A person’s home insurance rate may be reduced depending on how long they have maintained continuous coverage without filing any claims. Continuous house insurance (with no claims) demonstrates to the insurance provider your willingness to manage the risks associated with home ownership or rental, and you may be rewarded with a home insurance discount as a result.
The amount you pay in home insurance premiums may be influenced by your state and even your ZIP code. If your home is in an area known for perils such as vandalism, theft, or weather-related events, you may face a higher premium.
Dwelling coverage is the portion of your homeowners insurance policy that covers the structure of your home. Insurance companies have valuation tools that assist in calculating housing costs. The insurance agent – or online quoting tool – will ask you questions about your home in order to estimate how much it will cost to rebuild it.
In states where it is legal, insurers can use a homeowner’s credit-based insurance score as a rating factor when determining the level of risk they are accepting. A higher credit-based insurance score may lead to being perceived as less risky, and rates are frequently reduced as a result. Homeowners with poor credit are statistically more likely to file claims under their policy than homeowners with good or excellent credit.
Your marital status may affect your homeowners insurance rates, whether you are a first-time home buyer or have owned a home for many years. Because of the assumed lower risk, insurers will typically charge lower rates to married couples.
Tips to Reduce Homeowners Insurance Cost
Although, it does not pay to play it cheap with home insurance coverage, here are some ways to reduce the cost of your home insurance;
Maintain a Security System
A burglar alarm monitored by a central station or directly linked to a local police station can help reduce the homeowner’s annual premiums by 5% or more. To qualify for the discount, the homeowner must typically provide proof of central monitoring to the insurance company in the form of a bill or a contract.
Increase Your Deductible
The higher the deductible, as with health insurance or car insurance, the lower the annual premiums. However, choosing a high deductible means that claims/problems that typically cost only a few hundred dollars to fix, such as broken windows or damaged sheetrock from a leaking pipe, will almost certainly be absorbed by the homeowner. And these can quickly add up.
Look for Multiple Policy Discounts
Many insurance companies offer a 10% or higher discount to customers who have multiple insurance contracts under the same roof (such as auto or health insurance). Consider getting a quote from the same company that provides your homeowners insurance for other types of insurance. You could end up saving money on two premiums.
Plan Ahead for Renovation
Consider the materials that will be used if you plan to build an addition or an adjacent structure to your home. Because wood-framed structures are highly flammable, they typically cost more to insure. Structures made of cement or steel, on the other hand, will be less expensive because they are less likely to be destroyed by fire or adverse weather conditions.
Pay Off Your Mortgage
This is obviously easier said than done, but homeowners who own their homes outright will most likely see their premiums decrease. Why? The insurance company believes that if you own a place completely, you will take better care of it.
Top Homeowners Insurance Company in 2023
These are lots of Homeowners insurance companies in the United States of America. The Companies in this list are the ones that stand out compared to others. Here are some of the best Homeowners insurance companies in the USA:
State Farm is the largest homeowners insurance company in the USA, with a market share of over 18%. The company offers a wide range of coverage options, including standard policies for homes, condos, and rental properties, as well as specialized policies for high-value homes, farms, and ranches. State Farm has a strong financial rating and is known for its excellent customer service.
Some of the pros of using State Farm Insurance are;
- Shoppers looking for low prices can find their stakes here.
- It is ideal for individuals who require multiple types of insurance
- It is the best choice for customers who want to speak with a local agent
Liberty Mutual, headquartered in Boston, is the third largest home insurance company in the United States by market share. Initially, the company sold workers’ compensation insurance. In 1918, it issued its first auto insurance policy.
Based on 2020 revenue, Liberty Mutual ranked 71st on the Fortune 500 list of the largest corporations in the United States. In 2008, the company purchased Seattle-based insurer Safeco Insurance Co.
Home insurance from Liberty Mutual includes the standard types of coverage you’d expect in a homeowners policy.
Some of the pros of Liberty Mutual Homeowners insurance are;
- Discounts on home insurance are available in a variety of forms, including price breaks for new homes, renovations, and online payment and purchase.
- It is useful for those who prefer to manage their policies and claims online, but it also works for those who prefer to speak with an agent.
- Home insurance complaints about Liberty Mutual are lower than the industry average.
Farmers Insurance was founded in 1928 and currently serves over 19 million individual insurance policies for 10 million households across all 50 states. Farmers is the country’s fourth largest home insurance company.
Farmers home insurance policies include the following standard types of coverage:
- Dwelling coverage protects your home and any attached structures, such as a deck.
- Damage to other structures on your property, such as sheds and fences, is covered by other structures coverage.
- Personal property insurance covers damages or theft of personal items such as clothing, furniture, and electronics.
- Liability insurance compensates others for bodily harm and property damage. For example, suppose a visitor slipped on your sidewalk. It also covers legal fees if you are sued as a result of an accident.
- Additional living expenses coverage pays for out-of-pocket expenses such as restaurant meals and hotel bills if you are unable to live in your home due to a covered problem such as a tornado or fire.
USAA has been serving military members and their families since it was founded in 1922 by selling insurance policies to 25 Army officers. USAA is the country’s third-largest home insurance provider.
Homeowners insurance policies from USAA include the following types of coverage:
- Dwelling coverage protects your home and any attached structures, such as a garage or deck.
- Damage to detached structures on your property, such as a shed or fence, is covered by Other Structures coverage.
- Personal property coverage protects your belongings from theft or damage, including furniture, electronics, clothing, and valuables.
- Liability insurance protects you against accidental property damage and bodily harm to others, such as a visitor who slips on your icy sidewalk. It also covers your legal defense if you are sued for an incident covered by your homeowners insurance policy.
- Extra living expenses cover additional costs such as restaurant meals, hotel bills, and services (such as pet boarding) if you are unable to live in your home due to a problem covered by your policy (such as a fire).
In 1931, Allstate sold its first insurance policy. In 1954, Allstate introduced its residential fire insurance policy, which foreshadowed today’s homeowners insurance. Allstate is now the country’s second-largest homeowners insurance company. The headquarters are in Northbrook, Illinois.
Allstate’s home insurance policy includes the standard types of coverage you’d expect to find in a homeowners policy:
- Dwelling insurance protects your home and its structure from damage.
- Damage to other structures, such as detached garages or fences, is covered.
- Personal property insurance protects you against damage or theft of your belongings, such as furniture, electronics, and clothing.
- Liability insurance covers property damage and bodily harm to others (such as a guest who falls on your sidewalk). It also covers legal fees if you are sued as a result of an accident.
- Additional living expenses cover your additional costs when you are unable to live at home due to damage covered by the policy (such as a fire). Hotel bills and restaurant meals are just a few examples of additional expenses that can be reimbursed.
Frequently Asked Questions
How Much Does Homeowners Insurance Cost?
The average cost of homeowners insurance in the United States is $1,820 per year. However, depending on your location and the amount of coverage you purchase, your rate could be much higher or lower. In most states, your credit score is also taken into account.
How Can I Pay Less for Homeowners Insurance?
There are ways to save money on homeowners insurance if your premium appears to be too high. Many insurers, for example, provide a discount for combining home and auto insurance. You may also qualify for a lower rate if you have common safety features like burglar alarms and deadbolt locks. It’s also a good idea to shop around for homeowners’ insurance quotes to ensure you’re getting the best deal.
How Much Homeowners Insurance Do You Need?
If your home is destroyed, you must have enough homeowner’s insurance to cover the cost of rebuilding it. Personal property coverage limits of at least 50% of your dwelling coverage amount are generally required for your belongings. Finally, consider increasing your liability limit to cover all of your assets. More information can be found at How Much Home Insurance Do You Need?
Homeowners insurance is an important investment for anyone who owns a home. It protects your investment and gives you peace of mind knowing that you’re covered in the event of a loss or damage. By understanding what homeowners’ insurance covers, how to choose the right policy, and how to file a claim, you can make sure you have the right coverage in place to protect your home and personal property.
Check These Out
- Good Ways to Save on Homeowners Insurance
- How Much do Home Insurance Premiums Increase After a Claim?
- Factors that Impact your Cost of Homeowners Insurance
- How Many Claims are Allowed in Home Insurance
- Homeowners Insurance Guide – What Does Homeowner Insurance Cover
- Top Companies for Homeowners Insurance
- Homeowners Insurance Guide and What It Cover