Shopping for homeowners insurance isn’t glamorous, but it is necessary. While we may think devastating catastrophes like a house fire or severe storm damage are unlikely to occur, Murphy’s law often has other plans. If disaster strikes, you’ll be glad you planned ahead. Since buying a home is often the biggest purchase of our lives, it’s too risky to leave it unprotected.
What is homeowners insurance?
Homeowners insurance safeguards owners from financial hardship in the event their home and its contents are damaged or destroyed due to a disaster, like fire. Theft is also covered by most insurance policies. If you have a mortgage, your lender will require you to purchase homeowners insurance as it protects their asset as well.
Homeowners insurance shouldn’t be confused with the home warranty. A home warranty covers repair and replacement of appliances in your new home should they fail or break after you move in.
Choosing a homeowners insurance policy can be complicated since coverage isn’t standardized. While there might be similarities between policies, what’s covered varies from state to state and largely depends on the type of policy selected. If a particular disaster or event isn’t specifically listed in your coverage plan, don’t assume it’s included.
At minimum your homeowners insurance policy should:
- Cover the cost to repair or rebuild your home
- Cover the cost to replace your belongings
- Reimburse your living expenses if you are displaced by a covered event
- Cover injuries that happen on your property
What does homeowners insurance cover?
Insurance coverage typically falls within the categories below, although you have the option to add on more protections.
Dwelling Protection: This covers your house and attached structures like a garage.
Personal Property Protection: This covers the contents of your home like furniture, electronics, and clothing. For more expensive items like jewelry, you may want to opt for supplemental coverage.
Liability Protection: Covers you in case someone injures themselves on your property.
Additional Living Expenses Coverage (ALE): Provides reimbursement for expenses incurred while displaced from your home following a qualifying event. For example if your home burns down, ALE can cover rent while your home is being rebuilt or repaired.
Other Structures: This covers structures on your property that are not attached to your home like a shed or detached garage.
All policies have a list of “perils” that are covered. A peril is an mishap or catastrophe, like a fire or theft, that could cause damage to your home or its contents.
Commonly covered perils include:
- Fire and smoke damage
- Water damage (excludes flooding or sewer backups)
- Damage caused by weather like hail or windstorms
- Damage caused by snow or ice
- Explosions (like a gas explosion)
- Falling objects (like a tree falling through the roof)
What’s not covered
While this list may seem comprehensive, there are many things homeowners insurance doesn’t cover. Natural disasters like earthquakes and floods are not covered in most plans. You would need to buy additional insurance to cover those. For example, someone living in New Orleans would definitely want to purchase flood insurance and someone in California would be wise to buy earthquake insurance.
Additionally, homeowners can purchase water backup insurance to cover any sewer, sump pump and subsurface water damage. Normal wear and tear, pest control and anything that can be categorized as a maintenance issue are not covered by homeowners insurance.
How much does homeowners insurance cost?
According to the latest Homeowners Insurance Report from the National Association of Insurance Commissioners (NAIC), the average home insurance premium was $1,211. It’s important to note that costs will vary from state to state, and the value of your home will determine how your premium is calculated. You can view the full report and state by state breakdown here.
How much coverage do I need?
To determine how much coverage you need, take into account what the cost would be to rebuild or replace your home should disaster strike.
- Take inventory of your belongings: Be meticulous and thorough. It’s easy to underestimate how much you own and you don’t want to take the risk of not getting enough coverage.
- Research local construction costs: This will give you an idea of how much it might cost to rebuild your home.
Once you’ve done these two steps, work with your insurance agent to calculate the full replacement cost of your home. If you’ve just started looking for homeowners insurance options, Policygenius makes it easy to compare quotes from various insurers in one spot.
Searching for a home in NYC? Let Robin, our home hunting advisor, jumpstart your home buying journey today.