Right Home Insurance: Coverage Basics

Home insurance policy with keys and dollar money mortgage, loan or home insurance documents

Home insurance is an essential component of homeownership, offering financial protection in the event of unexpected damages or losses to your property. But with so many different types of home insurance policies available, it can be challenging to understand which one is right for you. 

What Does a Home Insurance Cover?

Most home insurance policies cover damage caused by fire, wind, hail, water (excluding flooding), and theft. However, it’s important to understand that many potential risks to your home aren’t covered by a standard policy. For example, most home insurance policies will not cover damage caused by earthquakes or floods. 

If you’re concerned about a particular type of risk, you may be able to purchase additional coverage to protect yourself. For example, some insurers offer “endorsements” that can be added to a standard policy to protect against specific risks, like earthquakes or floods. You may be able to purchase a separate policy that covers those risks.

What are the Different Types of Home Insurance Available?

There are a few different types of home insurance available to choose from. 

  1. HO-3 Insurance- also known as special form homeowners insurance. This type of policy covers your home and its contents against perils such as fire, windstorm, theft, and more.
  2. HO-4 Renters Insurance which is for renters who need coverage for their personal belongings; HO-6 condominium insurance, which is for owners of condominium units; and HO-8 older homes insurance, which is for homes that are 50 years or older.

When deciding on the right type of home insurance for you, it’s important to consider what your needs are and what type of coverage would best suit your situation. You can speak with an agent or broker to help you determine the right type of policy for you.

Benefits of Home Insurance Coverage

There are many benefits of having home insurance coverage. Some of the most important benefits include:

  • Home insurance coverage can help protect your home and belongings in the event of a fire, theft, or another disaster.
  • Home insurance can also help cover the costs of repairs or replacement if your home is damaged by a covered event.
  • If you have to relocate due to damage from a covered event, your home insurance policy can help pay for temporary housing and other expenses.
  • Home insurance can also provide liability protection if someone is injured on your property.
  • If you have valuable items such as jewelry or art, home insurance can provide coverage for these items in the event they are lost, stolen, or damaged.

Insuring Structural Damage to your Home

One of the most important things your home insurance policy should cover is structural damage. This type of damage can be caused by several things, including fires, severe weather, and even earthquakes. If your home sustains structural damage, it can be very expensive to repair or replace. There are two main types of coverage for structural damage:

  1. Replacement Cost- Replacement cost coverage will reimburse you for the cost of repairing or rebuilding your home, up to the limits of your policy. 
  2. Actual Cash ValueActual cash value coverage will reimburse you for the current market value of your home, minus depreciation.

Your choice of coverage will likely come down to budget. Replacement cost coverage is typically more expensive than actual cash value coverage, but it provides more protection in the event of a major loss. If you’re concerned about being able to afford repairs or replacement after a disaster, replacement cost coverage may be worth the extra expense.

Explaining Home Insurance Deductibles

Most home insurance policies have a deductible, which is the amount you’ll pay out of pocket before your insurer steps in to cover the rest of a covered claim. For example, if you have a $1,000 deductible and suffer $4,000 worth of damage in a covered incident, you’ll pay the first $1,000 and your insurer will pick up the remaining $3,000. 

  • The size of your deductible is up to you, and it will impact your premium costs.
  • A higher deductible means you’re shouldering more of the risk yourself, so your premiums will be lower. 
  • A lower deductible means your insurer is taking on more of the risk, so your premiums will be higher. 

It’s important to strike a balance between having a low enough deductible that you can comfortably afford to pay it if something goes wrong, and having a high enough deductible that you’re not overpaying for coverage you don’t need. You may want to consider raising your deductible if you have a good savings account or another financial cushion that can cover unexpected expenses.

Protecting you from Injury Liability

If you’re a homeowner, it’s important to have the right kind of insurance to protect you from liability if someone is injured on your property. Homeowners insurance typically includes liability coverage, which can help pay for medical expenses and other damages if someone sues you after being injured on your property.

To make sure you have adequate coverage, talk to your insurance agent or broker about your options and be sure to read your policy carefully. You may also want to consider an umbrella liability policy, which can provide additional protection if you’re sued. 

Tips for Reducing Homeowners Insurance Costs

  1. Research different insurance companies to find the best rates.
  2. Compare quotes from multiple insurers to get the best coverage for your needs
  3. Increase your deductible to lower your premium costs.
  4. Install home security features to help reduce the risks of theft or damage.
  5. Ask about discounts that may be available, such as for bundling policies or having a home alarm system.

Receiving the Right Coverage for Valuables

When it comes to home insurance, most people think about protecting their dwelling and personal belongings in the event of a fire, theft, or other disasters. But what about your valuables? If you have items of personal property that are of high value, you’ll want to make sure they are adequately covered by your policy.

There are two ways to insure your valuables with a home insurance policy: 

  • Scheduling them on your Policy- Scheduling your valuables on your home insurance policy is generally the most cost-effective option. You will pay a slightly higher premium for this coverage, but it will be less expensive than purchasing a separate floater policy. And, if you have a claim, your deductible will apply to the loss.
  • Obtaining a Floater Policy- Floater policy, which is a standalone insurance policy for your valuable items. This can be a good option if you don’t want to impact your home insurance premium or if you have multiple items of high value that would exceed the limits of your home insurance policy. One downside to this approach is that you will likely have to pay a separate deductible for any claims made under the floater policy.

With either option, it’s important to have an appraisal done on the item or items in question so that you can determine their replacement value. Once you know the replacement value, you can then decide how much coverage you need.