Why is Home Insurance Important?
A home tends to be one of your largest financial purchases, so it makes sense to protect it by purchasing a home insurance policy. It insures your home against losses such as theft, or if the structure were damaged by a fire or other types of extreme weather. Not all policies are the same, so it’s important to compare quotes from different insurers to find the best fit.
What is Homeowners Insurance?
Homeowners insurance will pay for damages and losses if something unexpected happens to your property. The amount you’ll be paid in the event of a claim will depend on your policy and whether it counts as a qualifying event or peril. Standard homeowners insurance policies typically cover damage from perils such as fire and hail. It could also cover accidents when guests are on your property.
Most mortgage lenders will require that you purchase home insurance to ensure that your property is protected. During your closing, lenders will typically ask for proof of insurance as part of the underwriting process. Many homeowners will pay for their homeowners insurance premiums through an escrow account provided by their mortgage lender. The funds are held in the escrow account until your premiums are due.
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Many homeowners will pay for their homeowners insurance premiums through an escrow account provided by their mortgage lender.
How Much is Homeowners Insurance?
Premiums for homeowners insurance will vary depending on factors such as your location, home value and its condition. It will also depend on the types of additional coverage you want to purchase that isn’t included in a standard policy.
More specifically, here’s what could affect what you pay:
- Location: Where your home is located has a large impact on your rates. Insurance underwriters look at whether your location is more susceptible to extreme weather (like hurricanes) or crime. Insurers may also look at how close your home is to a fire hydrant in the event there is a fire in your area. The more risk your location poses to your home, the more likely that you’ll pay higher premiums.
- Age of the home: The older the home, the more likely insurers may need to pay more to replace elements of the home in the event of a claim. Plus, older homes may not be up to code, so it can cost more to replace wiring, plumbing, or other major components of the house.
- Deductible: A deductible is the amount you will need to pay out of pocket for each claim before your home insurance kicks in. The higher the deductible, the more likely your insurance premiums may go down. However, it could be a riskier move since you’ll need to pay more before your insurer will pay for the remainder of your claim.
- Home features: Your home value could affect how much you pay, as well as any special or additional home features. For example, if you have high grade finishes, a pool or unique architectural elements, your premiums may go up because of the cost it could take to replace or repair them.
- Extra coverage: Though standard home coverage may be fine for many, some properties may benefit from extra coverage, such as insurance for valuables or protection against flood and earthquakes. Any of these could increase your costs.
- Any prior claims: If you’ve made prior claims on a homeowners insurance policy, it could affect your premiums.
Because premiums can vary between insurers and factors they use to determine policy prices, it’s best to get several quotes and compare them before making a decision.
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What’s Covered in a Homeowners Insurance Policy?
Homeowners insurance covers more than your physical home and belongings. It can also cover medical bills for guests who are hurt while on your property, or legal costs when defending against lawsuits related to your property.
Here’s what a standard homeowners insurance policy typically covers:
| Coverage Type | What It Covers |
| Dwelling and Structures | Physical structure of your home, including any attached features like a porch. It also includes detached structures like a shed or fencing. |
| Personal Property | Items such as furniture, fixtures, clothing and other types of personal items if they're damaged or stolen by any insured perils or disasters. The amount you receive is typically based on a percentage of your home's structure. In some cases personal belongings stored outside of the home — like at a storage unit — may also be covered under your policy. |
| Loss of Use | Loss of use or additional living expenses (ALE) coverage, subsidizes costs associated with living away from your home if it's considered uninhabitable due to a covered disaster. Your insurer may cover expenses such as restaurant meals, additional commute fees, hotel bills and other costs until your home is rebuilt. |
| Personal Liability | The insurer pays for legal fees (up to a certain limit as defined in your policy) in the event you're sued for any property damage or bodily injury resulting from an accident on your property. The policy may also pay for any damages caused by these accidents. |
| Medical Payments | Medical bills are covered for guests or neighbors on your property who have been injured, up to the policy limit. |
What’s Not Covered in a Homeowners Insurance Policy?
Although most homeowners find that standard coverage suits their insurance needs, it doesn’t cover all types of damages or theft. Some of what homeowners insurance won’t cover include:
- Some natural disasters such as earthquakes, sinkholes and landslides
- Sewer backups
- Mold or other infestations by critters and vermin
- Wear and tear
- Government action or events, such as war
- External flooding
- Damages due to windstorms
Some of the above you can insure by purchasing additional coverage.
How to Purchase Home Insurance
Purchasing home insurance can be done yourself or through an insurance broker. Either way, the steps to buying a policy are similar:
- Decide on the type of coverage you want and consider any additional coverage if you live in an area prone to certain natural events such as floods and earthquakes.
- Select your insurance deductible (choose one where you can easily afford to pay out of pocket in the event you need to make a claim).
- Gather information on your home such as any unique architectural features, age of roof, when your home was built, and the size of your home.
- Speak to your broker or gather quotes from multiple insurers and compare policies.
- Select the one that offers the best coverage based on your budget.
Selecting the right home insurance is key to protecting one of your largest assets: your home. By taking the time to compare insurers and policies, you can increase the chances that if and when the time comes to make a claim, you know what to expect.
