Alright folks, if you’re reading this guide, chances are you’re either thinking about buying a home, are in the process of buying one, or already own one. That means it’s likely you already know the importance of keeping up with regular home maintenance. Did you know that your homeowners insurance also requires regular maintenance?
Unfortunately, most people don’t show their insurance the same level of attention they show their homes. That’s why, regardless of how new you are to homeownership, it’s easy to forget or overlook the nitty-gritty details of your homeowners insurance policy.
Don’t fret: We’re here to help you get Covered with confidence!
We’ve put together a comprehensive guide of all-things-homeowners-insurance to help you make more informed decisions when it comes to selecting your coverage. This is all the stuff you really need to know in order to make the decision that’s right for you.
Coverages in a homeowners policy – what are they, and what do they cover?
All homeowners insurance policies refer to a package of coverages. The main types of policies and coverages are described below.
Types of policies
The most common types of homeowners policies cover your dwelling, its contents, personal liability, and medical payments. The type of policy you buy also contains coverage for specific perils, such as fire, theft, or windstorm. It’s important to understand that — in order for you to be reimbursed for damage to your property — a covered peril (such as fire, theft, or windstorm) must have clearly caused your loss.
There are two main types of homeowners insurance policies:
- An “open peril policy” (Special Form) covers most perils unless that peril is specifically outlined as excluded or limited. Generally, this is the preferred type of policy because it more broadly covers your home.
- A “named peril policy” (Basic or Broad Form) means you’re covered only if the loss is covered by a peril explicitly outlined in your policy. For example, if your home is significantly damaged or totally lost due to an earthquake but your homeowners policy doesn’t explicitly state that it covers earthquakes, you won’t be paid for either the repairs or loss of your home.
That’s why it’s so crucially important to review your policy so that you clearly understand the limits of your coverage. Otherwise, you risk learning that you’re not covered once it’s already too late to do anything about it – when you’re filing a claim for something that’s not covered.
Types of coverage
The main types of homeowners insurance coverage include:
- Dwelling – You are compensated for damage to your house and structures attached to your house. This coverage includes damages to fixtures, such as electrical, permanent heating and cooling systems, and plumbing.
- Other structures – You are compensated for damages to fences, tool sheds, standalone garages, and other structures not attached to your house.
- Personal property – This reimburses you for the value of your possessions, including furniture, electronics, clothing, and appliances that are lost or damaged even when they aren’t on your property (e.g., items at an off-site storage locker or with your child at college). Reimbursement can be paid in multiple ways, including full value or depreciated value. The depreciated value reflects the estimated loss of value due to wear-and-tear, aging, and other factors. Reimbursement varies from carrier to carrier, so you want to be sure to check this one!
- Personal liability – This covers your financial loss (up to a specific amount) if you are sued and found legally responsible for injuries or damages to someone else.
- Medical payments – This helps pay your bills (up to a specific limit) for people hurt on your property or hurt by your pets. Certain pets are deemed “dangerous breeds” by certain carriers; covering them in your policy may significantly increase your insurance cost or cause your coverage to be dropped all together.
- Loss of use – This pays your living expenses, up to a specific limit, while your home is being repaired due to a covered cause of loss.
Can I add more coverage?
Of course you can! If necessary or desirable, you can add coverages or endorsements to your policy. Endorsements are clauses or provisions in your policy that modify its original coverage. For example, if you live in California, you should add earthquake coverage. If you live in a coastal area, flood insurance is a good idea. If you live in an area prone to tornadoes, you should review the coverage provided in your policy; a separate wind and hail deductible usually applies.
Coverages not typically included in standard policies that you may want to add are the following:
- Flood insurance – The National Flood Insurance Program writes most of these policies.
- Earthquake insurance – This typically covers damage to your home and belongings, loss of use (see above), and certain additional living expenses.
- Windstorm and hail – Though these are typically covered in standard policies, if you live in a coastal area, they’re probably not covered.
- Mold, sewer, or drain damage – These damages usually aren’t covered.
- Guaranteed replacement cost – This pays to completely rebuild your home even if the stated dwelling limit is insufficient.
- Inflation guard – This raises your dwelling coverage limit annually in line with the rate of inflation.
- Personal umbrella liability insurance – This increases your liability coverage above the typical levels available in a homeowners policy. WE HIGHLY RECOMMEND YOU GET THIS!
- Personal article floater – This covers personal valuables such as jewelry, furs, coins, guns, antiques, art, and other items whose value may exceed the limited amounts included for these specific type of personal property in your homeowners policy.
- Ordinance or law endorsement – This pays for the extra expense to rebuild your home in compliance with local codes and ordinances that may not have existed when your home was originally built.
How much dwelling coverage should I buy?
You decide how much dwelling coverage you want to buy. So how do you decide how much to buy? Bottom line, your coverage should equal the full replacement cost of your home.
What is “full replacement cost,” you may ask? This does NOT equal the market value of your home, which includes the price of your land. Full replacement cost is what it will cost to build a new home on your property.
What are the limits of my coverage?
Your dwelling coverage limit is expressed in dollar terms. You’ll want to revisit your dwelling coverage from time to time, especially if you’ve made improvements to your home that the insurance company doesn’t know about. If they don’t know about your renovations and your coverage hasn’t been adjusted, you may not receive full replacement cost for the upgrades you’ve made.
The limits an insurance company will pay for personal property and loss of use are expressed in percentages of your dwelling limit. For example, if you have a dwelling coverage limit of $200,000 and your coverage for personal property is limited to 50% of your dwelling, your coverage for personal property would be $100,000. Is this enough for your personal property — i.e., the value of your possessions? Or do you need to add additional coverage to cover all your possessions? Coverage for that expensive piece of art or amazing collection of coins is limited and usually needs to be specifically endorsed on to your policy. Check your policy and choose your limits for personal liability and medical payments according to your current circumstances.
Typical coverage limits are as follows:
- Other structures – 10% of dwelling coverage limit
- Personal property – 50% of dwelling coverage limit
- Loss of use – 20% of dwelling coverage limit
- Personal liability – You choose
- Medical payments – You choose
What are the factors that affect my premium?
There are many factors that may affect your premium, which is the amount you pay for your policy. Factors affecting your premium include:
- Full replacement cost dwelling limit – The cost to replace or rebuild your home, which isn’t the same as the purchase price.
- Material of home – Is your home made of wood or brick? Brick homes are usually cheaper to insure than wood homes. Fire department location – How close is the nearest fire department or fire hydrant?
- Age and condition of home – Premiums are often higher for older homes and homes in poor condition.
- High-risk amenities – If you have a wood-burning furnace or stove, trampoline, swimming pool, or playground equipment, you could see higher premiums.
- Claims – Your personal claims history as well as the claims history of homes in your area affects your premium. Do you live in an area that has extreme weather? Increased claims in your area will increase your annual premium.
How can I change my premium?
Fortunately, many of the factors impacting your premium are in your control, such as which coverages you choose. You can effectively change your premium with these choices:
- Coverages – Did you add flood or additional umbrella liability?
- Deductible – Your deductible is how much you’ll have to pay out of pocket before your coverages will kick in. How much of a deductible can you afford? The higher the deductible, the lower your premium. Raising your deductible from $250 to $1,000 can result in annual savings of 5-15%!
- Bundling – Insuring your home and auto insurance with the same insurance carrier can save you up to 25%. We’ve seen people save over $500 per year by bundling.
- Credit – Believe it or not, insurance companies now assess your credit to determine your premium. Improve your credit to reduce your premium.
- Personal claims history – How many claims have you filed for homes you’ve owned? If it’s more than two claims, your premium may be twice as expensive as that of someone who hasn’t filed any claims. We realize accidents happen — we’ve all been there. But if you can maintain your home and avoid claims, you’ll be much better off in the long run.
Different insurance companies charge different premiums, so be sure to compare quotes across multiple carriers to ensure you’re getting the best deal possible.
How can I get discounts on my homeowners insurance policy?
We can’t call ourselves “The Ultimate Guide” without discussing another key factor that affects your premium. This is a factor that we at Covered love – DISCOUNTS!
When researching and buying homeowners insurance, you’ll want to make sure you’re receiving the maximum amount of discounts. Common discounts include:
- Bundles – We’ve already mentioned this, but it’s worth repeating because it’s the #1 way to save a significant amount on insurance. Click here to get a bundle quote.
- Safety devices – Security systems and deadbolt locks could save you anywhere from 5-10% depending on your insurance carrier and the type of security device. Not every system qualifies for a discount, so be sure to find out what qualifies for a discount before buying. Ask your insurer for recommendations.
- Smoke detector – Having one of these easy-to-use (and common!) electronic devices in your home should give you around a 5% discount.
- Living near a fire department – Living near a highly rated fire department reduces your premium.
- Payments – Paying annually instead of monthly can save you a few percent each year.
- Roof – Impact-resistant roofs often lead to lower insurance premiums.
- Sensors – New sensor technologies — such as sensors that detect gas or water leaks — can activate additional discounts on your annual premium.
- Coastal location – Often, homeowners living in high-risk areas such as coasts are better off with government insurance plans.
What are the most important things I should keep in mind as I shop for a policy?
At Covered Insurance, we promote transparency and honesty. That’s what we’re all about. That’s why we recommend that, to be a genuinely smart shopper, you should do your homework and compare quotes across multiple insurance carriers. That way, you can pick the policy that’s genuinely the best fit for your needs and budget.
In addition to comparing quotes across multiple carriers, which you can quickly and easily do here, make sure to check these things too:
- Check to see if your policy covers all “perils” (a specific risk or reason for a loss) – Does it cover all perils except those specifically excluded (called Special Form)? Or does it only include the perils listed (called Basic or Broad Form)? See what’s missing and consider adding coverage to address any gaps.
- Keep an inventory of your personal property – How else will you prove that you owned that awesome guitar signed by Jimmy Hendrix or that vintage ring from your grandmother? Keep receipts and documents online if possible so that you have proof in the event you need to file a claim. Take pictures of each room in your home, too.
- Do the math about actual cash value vs. replacement cost – Again, replacement cost is the cost to rebuild your home with comparable materials. Actual cash value, or ACV, is the value of your home considering its age and wear and tear. Why does the distinction matter? In the event you lose your home, you will be paid the replacement cost of your home MINUS your home’s depreciation MINUS your deductible. If you have an old home, your depreciation may be significant, and ACV could end up paying out very little. In addition, ACV may not pay enough to fully repair or replace the damage if your property is considered poorly maintained. Learn more here.
- Keep your cash in a fire-proof safe – No insurance company will believe that you lost $5 million (or even $500) in cash when your house burns to the ground. In fact, most policies will only cover a total of $500 cash.
- Make sure you pay your premiums on time – This may seem like a no-brainer, but it’s worth calling out. Not all carriers offer grace periods, and late payments or non-payment may lead to cancellation of your policy. Then you’re REALLY not covered.
Now, you’re well-equipped with a fully packed quiver of insurance knowledge. Go forth and prosper, taking on your homeowners insurance decisions with confidence — and even a mild amount of swagger!
If you have any questions or would like to speak to a highly trained and licensed agent, you may call a dedicated insurance counselor at Covered by dialing 833-487-2683 or click here to schedule a call when it’s most convenient for you. We’re always here for you, making sure you’re covered.
Cheers! Covered Insurance