So you've bought a house—congratulations! Now comes the not-so-fun part: making sure your new home and everything in it is properly insured. There are 2 main options to consider: home insurance and homeowners insurance. So what's the difference? How do you know which one is right for you?
Don't worry, we've got you covered. Literally. In this blog post, we're going to break down some basics of home insurance vs homeowners insurance so you're able to choose the policy with the best value. By the time you're dome, you could be an insurance expert and ready to safeguard your castle.
Understanding Differences Between Home Insurance and Homeowners Insurance
Home insurance, also known as hazard insurance, is a type of property insurance that covers damage to your actual house from disasters like fires, storms, tornadoes, or floods. It helps cover repairs or rebuilding in these catastrophic events.
Homeowners insurance provides more comprehensive coverage. In addition to covering your home’s structure like home insurance, it also covers things such as:
- Your belongings inside the home like furniture, appliances, clothing, and valuables.
- Additional living expenses if you can’t live in your home due to damage.
So while home insurance protects your property asset, homeowners insurance protects your property and everything in it—and your financial liability. Most homeowners agree the broader coverage of homeowners insurance is worth the cost.
What coverage do you need?
Calculate the total value of your home plus belongings to determine how much coverage to buy. Factor in additional living expenses too. It’s best to overestimate a bit. You want enough to completely rebuild your home and replace belongings in a worst-case scenario.
Review your policy limits and deductibles annually and increase as needed to account for home additions or new belongings. Better safe than sorry—make sure you have the coverage you need in case disaster strikes. Your home and financial security depend on it.
What Is Covered Under a Basic Homeowners Insurance Policy?
A standard homeowners insurance policy protects the structure of your home and personal belongings in the event of damage from things like fire, theft, or a natural disaster. Here's what's typically covered:
- The home: foundations, roofs, walls, plumbing, electrical, etc. This includes any permanent fixtures like built-in appliances, cabinets, and flooring.
- Personal property: furniture, electronics, clothing, and other belongings. Basic homeowners insurance policies provide coverage for a certain amount of your property, often 50-70% of the home's value. You'll need additional coverage for high-value items.
- Loss of use coverage: If your home is uninhabitable due to a covered incident, home insurance will help cover additional living expenses like housing and meals.
- Personal liability: Covers you in case someone is injured at your home and decides to sue. Provides legal defense and settlement costs up to your policy limits.
While homeowners insurance covers the significant stuff, it doesn't include normal wear and tear or home maintenance like repainting exterior walls or replacing a worn-out water heater. It also typically excludes flood damage and earthquakes which require separate additional coverage.
Additional Coverage Options for Homeowners Insurance
As a home owner, basic home insurance is essential but additional coverage options are available for more protection. Here're some to consider:
Umbrella insurance provides extra liability coverage beyond what’s included in your home insurance policy. It kicks in when your home insurance limits have been reached, providing an “umbrella” of additional coverage. This could protect you financially in the event of a major claim, lawsuit, or disaster. Umbrella policies typically provide $1 million to $5 million or more in extra coverage.
Homeowners insurance does not cover damage from floods. For flood coverage, you're going to need to purchase separate flood insurance, which is available with the National Flood Insurance Program. Flood insurance covers damage to your home, belongings, and other structures on your property from flooding events like heavy rains, storm surge, and overflowing rivers. Rates and coverage limits vary depending on factors like your home’s flood risk and year built.
If you're living in an area prone to earthquakes, earthquake insurance can help protect your property financially. Like flood insurance, earthquake coverage is not part of a standard homeowners insurance plan and must be purchased separately. Earthquake insurance can cover damage from the shaking and ground movement itself, as well as damage from resulting events like fires, tsunamis, and mudslides. Premiums and deductibles for earthquake insurance tend to be higher than for other add-on policies.
- Water damage: Adds coverage for damage from events like burst pipes, water heater issues, sump pump failure, etc.
- Identity theft: Helps cover costs related to identity theft like legal fees, lost wages, and more.
- Valuable items: Provides additional coverage for high-value items like jewelry, art, antiques, and collectibles.
- Home-based business: Covers liability and property damage related to a small business you manage from your home.
- Mortgage insurance: Protects your mortgage insurance company in case you're unable to make payments. Most companies require you to have this policy to work with you.
The additional insurance coverage you need depends on your home’s risks and value as well as your own financial situation and risk tolerance. Talk to your insurance agent to determine what add-on policies are right for you.
Factors That Affect Your Home Insurance Premiums
The amount you cover for home insurance depends on several factors that determine your policy premiums. Insurance companies evaluate these factors to calculate your overall risk and set a price for your policy. Some of the major factors that affect your home insurance premiums include:
The value of your home
The more your house is worth, the more it will cost to insure. Insurance companies view higher value homes as a bigger financial risk if there is a loss like fire or storm damage. Make sure your coverage limits adequately match the replacement cost of your home.
Where your home is located plays a role in your premiums. Homes in areas with higher risks of natural disasters such as hurricanes, floods or wildfires often mean higher premiums. Homes in cities typically have higher rates than rural areas due to risks like theft or vandalism.
The type of home you have
Certain home types are more expensive to insure. For example, frame homes tend to cost less than brick homes to replace in the event of a loss. Homes with additional risks like swimming pools may also increase your premiums. Condos and townhomes often have lower premiums than single-family homes.
The deductible is the amount you pay out of pocket for a claim before your insurance kicks in. Choosing higher deductibles, like $2,500 versus $500, lowers your premiums significantly. However, make sure you can afford the higher deductible if you do have a claim.
If you have a history of frequent claims, especially with avoidable losses, insurance companies look at you as a higher risk and will charge more for your policy. Limit claims to only those that are unavoidable to keep your premiums lower.
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