What Is Homeowners Insurance?
A guide for first-time homebuyers
Homeowners insurance helps protect your home and its contents against disasters like fire, windstorm damage and theft. Getting a homeowners policy is an important part of the mortgage process, but some first-time homebuyers overlook it in their planning and budgeting. Here’s what you need to know.
Do I need homeowners insurance?
Yes, for two reasons:
- Your lender will likely require it. Most lenders require you to maintain homeowners insurance for the duration of the mortgage to protect their interest in the property. This is similar to a lender requiring full insurance coverage on a car until it’s paid off. Without homeowners insurance, you’re unlikely to secure a home loan.
- It helps safeguard your assets. Your home will be one of, if not the, biggest investment you ever make. There’s a lot riding on it in terms of your future. Major damages, the loss of your house, or being found liable for an injury that occurs on your property can be financially devastating. Homeowners insurance helps protect you against these losses.
What is and isn’t covered by homeowners insurance?
There’s no one definitive answer to this question. What’s covered depends on many factors, including how much coverage you choose and where you live.
Generally, though, homeowners insurance offers coverage for these areas:
- Damage to your home caused by “covered perils.” Typically this includes windstorms, hail, fire, lightning strikes, theft, vandalism, civil unrest, explosions, or a vehicle striking your home.
- Damage or loss of personal property in the home due to a covered peril
- Personal liability coverage should a visitor be injured on your property
Homeowners insurance typically doesn’t cover:
- Earthquake damage
- Flood damage
- Personal belongings beyond your coverage limit. If you have valuables such as art or heirloom jewelry, you will likely need more coverage.
Review any homeowners policy carefully to ensure you know what is and isn’t covered. Comparison shop. Don’t be afraid to ask the agent as many questions as you need to understand the fine print.
How much does homeowners insurance cost?
Again, there’s no one definitive answer. Just like car insurance, there are many factors that go into determining your individual premium.
These can include:
- The age and condition of the home
- Area-specific risks (such as tornados) that may need more coverage
- A swimming pool or trampoline on the property
- Pets – insurers may charge higher premiums or refuse to offer coverage if you have a type of pet they consider high-risk
- Security – having a security system, alarm, deadbolts, security devices for windows, and other anti-theft measures may lower your premium
Also like car insurance, you have some control over your coverage. Most lenders require that you carry enough insurance to cover the mortgage amount. Opting for the minimum amount lowers your premium, but can leave you short in the unfortunate event your home is destroyed or damaged.
Purchasing a homeowners policy that covers the full replacement cost of your home provides more complete protection. There are also policies available that cover the market value of the home. In some cases, this may be the most practical option. Every homeowner’s needs are different, so you should discuss your coverage options with your insurance agent.
Homeowners insurance is important for protecting your most cherished asset—your home. With some time and research, you can find the policy that best fits your needs and budget.