What Is Homeowners Insurance?
It’s time to start thinking about home insurance . If you’re going to take out a mortgage (and let’s face it, most of us need a loan to become a homeowner), you’ll be required to have at least some form of homeowners coverage.
This requirement makes sense when you think about it, because homeowners insurance protects you and your mortgage lender’s big investment. But while homeowners insurance is often required, not many homeowners understand the nuances of their policies.
More than half of people don’t understand what is (and isn’t) covered or how much coverage they really need. And we don’t blame them: these policies can be a bit confusing.
Read our guide, in plain language, and you’ll walk away feeling much more confident in your home insurance knowledge.
What is home insurance?
Basically, a home insurance policy is an agreement between you and your insurance company. You pay a monthly premium, and in return, the insurer offers you financial protection in case something bad happens.
A standard home policy can cover the costs of repairing damage caused by events such as fire, lightning, gales, hail, smoke, theft, vandalism… and the list goes on.
If you want to know the details of your policy, a good place to start is the declarations page , which is a summary of everything you need to know about your coverage.
Why should I take out home insurance?
Mainly, well… because I probably have to.
When you take out a mortgage, a lender or bank lends you a large amount of money to cover the price of a home, with the expectation that you, the owner, will repay this loan with interest. If your home were damaged and you didn’t have insurance (or funds for repairs), you could default on the loan, the property would drop in value, and the lender would take a big loss on their investment.
But beyond being mandatory, home insurance is just common sense. The right coverage can protect your wallet if you get a bit unlucky, like a tree falling on your roof.
What does home insurance cover?
Here’s what your standard home insurance policy covers:
cover your house
If your physical home is damaged or destroyed, homeowners coverage may help cover the costs. Although there will also be some exclusions of what the coverage covers, which you will see listed in your policy. For example, it is common that damage caused by floods or earthquakes is not covered by the policy.
Cover your extended property
This part of the policy, known as “other structures” coverage, covers property you own that is not connected to your home or built on the foundation of your property.
This coverage includes your driveway, fence, or tool shed. Basically, if it’s not attached to your house, and it’s part of your property, it’s covered.
Cover things that are your property
If you’re familiar with rental insurance, you probably know a thing or two about this type of coverage.
Personal property coverage covers your things. This includes things like your laptop, your record collection, or your Platoon.
This cover can also protect your things if they are in nature. If your bike is stolen (even if you have locked it) in front of a cafeteria, it is also covered.
Covers situations in which your home becomes uninhabitable
If you suddenly cannot live in your home due to unexpected damage covered by your policy, loss of use coverage kicks in to cover the additional expenses associated with temporarily living away from home.
This type of coverage will help you meet the additional costs associated with hotel accommodation, take-out food, laundry and parking, beyond what you would normally pay.
Covers you (and other people on your policy) when you are in a legal bind
We hope you never have to use your liability coverage, but if you ever find yourself in a legal bind, your coverage is there to soften the financial blow.
This coverage comes into play if:
- You are being sued because someone has been injured on your property
- You or someone on your policy is sued for damaging someone else’s property or things
- There are legal fees for accidents where you (or someone else on your policy) are at fault. Keep in mind that this only covers damage to other people, not to yourself, and not to the people listed on your policy… check out the Coverage E section of your policy for more information.
It can cover you (and other people on your policy) when someone is injured on your property
Let’s say after a glass of wine (or more), a guest slips, falls, and breaks their ankle on your patio. In this case, your liability coverage will help you foot the bill.
What does home insurance not cover?
Earthquakes and floods are not covered in a standard home insurance policy. If you still want coverage for this type of disaster, you can purchase additional coverage.
Your policy will most likely also not cover: mold damage, sewer clogs, infestations (including bed bugs), pool accidents, wear and tear, construction damage, dangerous/aggressive dogs, stolen money, nuclear hazards, and government actions.
Although your standard policy covers things like jewelry, artwork and musical instruments to some extent, you may want to add extra coverage if you have a lot of valuables in these categories.
Who is covered by home insurance?
Home insurance is a family affair. If you take out a policy, everyone living under your roof who is related to you by blood, marriage or adoption is covered. Your children, your spouse, your parents, etc., will be covered by the policy.
This sounds simple, but keep in mind that if you take out a policy and you and your life partner are not officially married or in a state-recognized civil union, you will not automatically be covered.
In this case, you can easily add them as additional insured for an extra cost. To make sure you have everyone in your household covered, check out this complete guide to finding out who’s covered under your homeowners policy .
How much home insurance do I need?
When purchasing a home insurance policy, many people just purchase coverage without thinking about it, opting for the lowest coverage options and therefore being left with very little coverage.
Spending a little time to really consider coverage amounts beforehand could save you a lot of time, money, and heartache in the long run.
Let’s dive into how much coverage you may need across the six parts of your homeowner’s policy, so you can get the protection you need. Ready for a summary?
Homeowner’s coverage covers physical damage to your home (your house and everything attached to it).
Your home coverage must cover the costs of rebuilding your home from the ground up. This makes sense, because if the worst were to happen and your house was completely destroyed, you would want your insurance company to cover “rebuild costs.”
On the other hand, you don’t want to simply use the current market value of your home for your home coverage, as that will likely end up being more coverage than you really need.
Personal Property Coverage
Personal property is a fancy way of saying “your stuff.” Your speakers, your television, your library of old detective novels, and your karaoke, to name a few.
Personal property coverage must be between 50 and 75 percent of the amount of your home coverage. Thus, for example, if the housing coverage is 300,000 euros, the personal property coverage should be between 150,000 and 250,000 euros.
If you think this doesn’t fully cover your most valuable valuables (like art, jewelry, and electronics), look into extra personal property coverage with your insurer. This add-on covers all risks listed in your base policy, plus other types of accidental loss or damage.