Homeowners Insurance

Homeowners insurance can be complicated. It helps to understand what is included and how to better protect property and possessions in a few steps. 

Our general guidance can help shed light on some of the nuances of homeowners insurance. Contact an insurance agent to get the right insurance coverage.

Is homeowners insurance needed? 

Carrying homeowners insurance helps to replace damaged, stolen, or destroyed personal property, including a home, and includes liability coverage, even if the mortgage is paid off. 

What is homeowners insurance? 

Homeowners insurance covers damage to property and the liability or legal responsibility for any injuries and property damage caused to others. This includes damage caused by household pets. 

What does homeowners insurance cover?

What is covered under homeowners insurance varies based on location, the insurer, the policy chosen, and the endorsements or riders added to the base policy.

In general, a base homeowners insurance policy should financially protect the policyholder from losses due to fire, theft, and liability claims due to injuries on the property. The insurance policy should also pay for additional living expenses if displaced because of damage to the property. Additional living expenses can include hotel or rental home costs and food, clothing, and other supplies. These limits can be increased.

Personal property coverage is also included in a base homeowners policy. Personal property includes possessions - furniture, appliance, clothing, etc.

There are limits to what is covered under homeowners insurance personal property, and additional coverage can be added for jewelry, art, and other valuables, or the limits can be increased in general.

What is the difference between an insurance premium and an insurance deductible?

An insurance premium is paid to an insurer each year for insurance coverage. The insurance premium is paid to an insurer annually or held in escrow by a mortgage servicer and paid monthly as part of the mortgage payments. Insurance premiums can change each year based on many factors, including the age of the house, the age of the roof, the number of claims made, credit score, policy endorsements and coverages, and market factors. 

An insurance deductible is the amount of money paid out of pocket if there is damage and an insurance claim is made. An insurance deductible is withheld from the claim amount, leaving the property owner to pay the rest of the claim amount out of pocket. For example, if an insurance deductible is $2,500 and there is a $10,000 claim for damages, the insurance company will send a check for $7,500, leaving a difference of $2,500. 

Some insurance deductibles are percentage based, as with most wind insurance policies. In this case, the insurance deductible is based on a portion of the insured value of a property. For example, if the house is insured for $200,000 and the wind insurance deductible is 5%, the deductible amount would be $10,000.

What types of homeowners insurance are there?

There are two types of homeowners insurance coverages, Actual Cash Value (ACV), and Replacement Cost Value (RCV). 

What is replacement cost value homeowners insurance (RCV)?

RCV coverage is what we recommend, if possible. It can be more costly, but it's a better value. It pays to replace items or damaged parts of a home at today's prices with no depreciation.

What is actual cash value homeowners insurance (ACV)?

ACV can be more affordable and pays for a similar item at today’s cost minus depreciation. Depreciation is a decrease the value due to wear and tear or age. A TV or roof can depreciate to a value of nothing ($0.00) after the deductible is factored in.

Is wind insurance included in homeowners insurance?

In coastal states, homeowners will need to add wind insurance. Wind insurance can have many names - wind, hurricane, named storm, or a wind and hail insurance policy. Wind insurance added to homeowners insurance protects against damage from hurricanes, tropical storms, thunderstorms, hail, or wind storms. 

For inland homeowners, wind and hail coverage is likely already part of the base homeowners insurance.

Learn more about wind insurance here. 

What should be included in homeowners insurance?

Check to see that Ordinance or Law endorsement is included in the policy. Ordinance or Law will pay to bring a home up to the current building code if it is substantially damaged.

Also, ensure that water backup or water and sewer backup coverage is added, which protects from the costs of an overflow in a home. Sewer and water backup coverage is separate from a flood insurance policy.

If these coverages are not included, the repair costs will come out of pocket.

Is flood insurance needed?

Homeowners insurance does not cover flood damage in most cases. If the home is in a special hazard flood area (SHFA), flood insurance is likely to be required if the property has a mortgage. Flood insurance is highly recommended and likely affordable if the property is outside of the SHFA or near one. One inch of water can cause up to $25,000 in damage making the annual cost of insurance a good investment. Learn more about flood insurance. 

Are there ways to save money on homeowners insurance? 

Learn how to lower insurance premiums here.

Buy enough homeowners insurance to cover:

-The structure of the home and any additional structures (detached garage, shop, shed, etc.)

-Personal possessions

-The cost of additional living expenses if living elsewhere is needed during repairs

-Liability to others