In America today, roughly 70 million homes, or 95% of homeowners, have homeowner’s insurance. Today, home insurance coverage is a necessity to keep your home safe.
Homeowner’s insurance protects your home and belongings from damage or theft. Protecting your home is a requirement for any responsible homeowner. But, securing homeowner’s insurance is sometimes a complicated process.
Whether it’s your first time buying insurance coverage or you’re shopping for a new policy, you’ll probably have a lot of questions. Use this guide as your first step to finding the best homeowners’ insurance for your needs.
What Makes Homeowners Insurance a Necessity?
Homeowners insurance intends to protect you and your property. Your home and all the belongings in it will be financially taken care of in the event of damage or theft. But, that’s not the only reason having homeowner’s insurance is extremely important.
In today’s world, virtually all mortgage lenders require proof of homeowner’s insurance. Also, this insurance must cover the full value property of your home. Without it, many lenders won’t offer you a loan.
Even if you’re renting, most landlords require renter’s insurance. But, even if your landlord doesn’t, it may still be a good idea to keep your home covered.
Damage, theft, and vandalism can all be financially devastating. Homeowner’s insurance helps absorb those costs, so you can easily get back on your feet.
What Does Homeowners Insurance Protect?
Insurance will cover both the internals and externals of your house in the event of disaster or vandalism. But, when you buy insurance for your home, your coverage extends beyond just your house.
Insurance covers all the possessions inside your home, too. Additionally, you’ll receive liability coverage and accommodations in the event of serious emergencies.
Plus, there are coverage riders and special policies you can add to your plan to increase your protection. Ultimately, homeowner’s insurance is infinitely customizable. Your policy will reflect your needs.
Let’s take a closer look at all the things homeowner’s insurance provides:
Internal and Externals of Your Home
Having coverage for the internals and externals of your home allows you to repair or rebuild in the event of an emergency.
However, standard insurance only covers damages that occur in certain events. These include things like fires, hurricanes, lightning, hail, and vandalism.
Special riders or policies are necessary for damage caused by things like floods, earthquakes, or poor maintenance. Having this additional coverage is an excellent idea if you live in prone areas. But, this protection may a worthwhile investment even if you don’t.
Freestanding structures such as garages or sheds will also require special protection. Additional coverage or an entirely separate policy will be necessary.
Contents of Your Home
Your possessions, such as clothes, furniture, or jewelry, are also protected under standard homeowner’s insurance. However, these are only protected when damaged in an insured disaster or theft.
It is also possible to add special “off-premises” coverage for your items. This allows you to file a claim no matter where you lost or damaged the item. So, if you lose that expensive diamond necklace on your travels, it’s covered.
This additional protection is beneficial for high-priced items. Special coverage riders exist for expensive art, jewelry, furniture, or clothing. However, there are limits on reimbursement amounts.
Most policies will cover 50-70% of the amount of insurance you have on the home. So, if you have $200,000 in coverage on your home, you’ll receive $140,000 in coverage on your possessions.
Higher-priced items will again need special riders or separate policies. Or, you could raise your coverage ceiling with higher premiums.
Personal Liability Coverage
Liability coverage is a key component of homeowner’s insurance. This will protect you from lawsuits filed by others. So, if a neighbor slips and breaks a hip on your property and decides to sue, you’re covered.
In some cases, liability coverage even extends to pets. So, if Fido bites the Jean neighbor and she decides to sue, you’ll be covered for that, too.
Policies offer coverage for as little as $100,000. However, experts at the Insurance Information Institute recommend a baseline of $300,000 for most households.
Umbrella policies are also available. Umbrella Insurance allows you to increase your liability coverage for a few hundred dollars in premiums to receive an extra $1 million or more in coverage. For homes with dangerous pets, for example, this could be a worthwhile addition to your policy.
Hotel Rentals in Case of Emergency
In certain emergencies, your home may be so damaged it becomes unlivable. If you should find yourself houseless because of a covered emergency, homeowner’s insurance will cover the cost of a hotel or home rental. So, you’ll remain housed while the home is being repaired/rebuilt.
This coverage also includes additional living expenses. These include hotel rooms, restaurant meals, and other incidental costs.
Be cautioned, though, that these policies almost always come with strict daily or total limits. However, by paying more in coverage, you can expand these policy limits.
What’s Not Covered by Homeowners Insurance?
Standard policies won’t cover certain events. These include:
- Certain Natural Disasters (such as floods, earthquakes, and forest fires)
- “Acts of God”
- Acts of War
If you wish to keep your home protected from such events, you will have to purchase special riders or separate policies. Flood insurance and extra policies may be worth it, especially if you live in particularly prone areas.
You can also add things like sewer and drain backup coverage, which isn’t covered by traditional policies. Identity theft protection is another potential addition that isn’t covered under standard policies.
What are the Different Types of Homeowners Insurance?
Not every insurance policy is the same. Like most types of insurance, inexpensive policies offer the least amount of coverage. Homeowner’s insurance, in particular, is incredibly customizable, meaning great fluctuations in policies.
Though policy options are virtually infinite, there are still a few standard “types” or levels of homeowner’s insurance offerings. These types, HO-1 through HO-8, are based on the needs of the homeowner and the type of residence.
There are essentially 3 basic levels of coverage within these various types. There are lots of different options between these types. But, knowing the basics can make sure you’re prepared for choosing your own policy.
The 3 levels of coverage are:
1. Actual Cash Value
The first coverage level will protect up to the cost of the house and possessions. However, depreciation deductions will occur. This means things like age and poor maintenance could reduce the amount of coverage you receive.
This option does not keep up with inflation. You will only receive the amount that the property is worth at the time of claim filing, not what you originally paid for it. This is the “actual cash value.”
If you must rebuild your home, for example, you will likely be unable to restore it to its original value with this option. But, this level offers the lowest premium costs.
2. Replacement Cost
The second coverage level will cover the actual cash value of your home and possessions. However, with this option, there will be no depreciation deduction.
This means in the event of a disaster, and you will be able to purchase repairs or replacements worth your home’s original value. This option doesn’t exactly keep up with inflation, however.
3. Guaranteed (Extended) Replacement Cost/Value
This is the only coverage level that will truly account for inflation. Extended replacement policies are comprehensive policies that act as a buffer against changing markets and rising costs.
Extended replacement will pay for the full cost of repair or rebuild, even if it exceeds your policy limits. The costs of materials and repairs will likely be higher after the disaster than at the time of building, so this policy offers extended protection.
There are usually limits, however. Generally, the insurance company will cover roughly 20-25% above the policy limit.
Some advisors recommend extended replacement coverage for all homeowners. This is because if you want to restore your home to its original value, you’ll need to be able to purchase materials at current costs. This is the only policy that can actually protect you from inflation and rising construction costs.
How Do Policy Providers Determine Rates?
Insurers will determine your policy rates based on their perceived “risk.” Insurers define risk as to the likelihood that a homeowner will file a claim. Several factors go into determining the level of risk you could represent to insurers.
Factors include the number of past claims submitted by the homeowner. Claims associated with the property itself are also considered, even if a previous owner filed them. Insurers take special notice if there have been multiple filed claims for the same problem.
Additional factors, like the credit of the homeowner and the house or neighborhood condition, are also taken into consideration.
It’s important to remember that while insurers want to keep you protected, they also want to turn a profit. The more high-risk a home or homeowner is, the more likely they’ll have to pay for expensive claims.
What Raises Rates?
A home is high-risk if it has had multiple claims filed in the last 3-7 years, especially if they were for the same issue. In some cases, you may not even be eligible for homeowners insurance, depending on the number of claims filed.
In most cases, though, being a high-risk homeowner will simply raise your premiums. Having a poorly maintained home will also raise your premiums, as they represent more risk to the policy provider.
In some cases, even pets can have an impact on premium rates. Certain breeds of large dogs, especially, can cause frequent damage to a home. This makes insurers a bit more hesitant about granting a policy.
Policy providers also take into account building materials required for your home when deciding rates. For example, a house made of wood, which is flammable, will incur more risk. More risk equals higher premium rates.
Of course, any extended or special coverage you desire will also be a factor in determining your premium rates. The more coverage you desire, the higher your premium will be.
How Can I Cut Costs?
In many cases, playing cheap with home insurance will put you at extra risk. But, there are still a couple of ways you can lower the costs of your premium. Each of these steps represents less risk to policy providers, which means lower premiums for you.
Install a Home Security System
If you don’t already have one, installing a home security system can lower premiums by potentially 5% or more. Your insurer will likely require proof of the system in the form of a bill or contract.
Home security systems aren’t the only safety feature you can add that will lower your premiums. Installing smoke detectors, especially in older homes, could potentially reduce premiums by up to 10% or more.
CO detectors, dead-bolt locks, sprinkler systems, or even certain weatherproofing measures could also help lower your premiums.
Raise Your Deductible
If you’re looking to lower your premiums, consider raising your deductible. Higher deductibles represent less risk to insurance providers, which means lower premiums for you.
There is a downside to this option, however. Any damage that occurs that costs less than your deductible will have to be paid for out-of-pocket. That means low-level damage such as smashed windows or leaky pipes may become out-of-pocket expenses.
Eventually, these costs have the potential to really add up, especially in homes with children or certain kinds of pets.
Seek Out Multiple Policy Discounts
Most insurance companies will offer discounts for “bundling” multiple insurance policies. Getting home and auto insurance from the same provider, for example, could lead to some serious savings.
Discounts usually range around 10% or more. When shopping around for an insurance policy, be sure to get a quote for each different type of insurance. This way, you can better compare all the offerings of each potential provider.
Plan for Potential Renovations
If you’re planning renovations for your home, be sure to plan how these changes could affect your insurance rates. When deciding on home add-ons, consider the types and costs of different building materials.
As we mentioned, wood raises insurance premiums. Steel or concrete, however, costs much less. This is because they are less flammable and mostly weather-resistant.
It’s also important to think about the kind of add-ons you’re considering building. Dangerous additions such as swimming pools or trampolines could raise premiums by 10% or more. You can expand your liability coverage to help protect your property.
Pay Off Your Mortgage
Obviously, this isn’t the easiest step on the list.
But, homeowner’s who have paid off their mortgages in full often receive lower premium rates. This is because insurers figure you’ll take better care of a place that’s totally yours.
Regularly Review Your Policy Options
Comparison shopping regularly can help you find the lowest possible rates for your situation. Experts recommend doing some comparison shopping at least once a year to maintain the best rates.
Don’t forget to compare bundling and group rates while comparison shopping. Use the Homeowner’s Insurance Shopping Worksheet to help you determine what you need and what you should be looking for while shopping.
Frequently reviewing your current policy can also help you keep costs down. Keep note of any changes to your home, family, or property that could be cost-lowering. Changes such as installing a new security system, for example.
Look for changes in your neighborhood that could be cost-lowering, as well. Things like new fire hydrants or fire substations near your home could definitely leave you with lower premiums.
You should also make regular assessments of your valuable items. Keeping an inventory of your possessions helps to ensure that you’re properly covered. When it comes to their content policies, many homeowners are underinsured.
How Do I Find the Best Homeowners’ Insurance Policy?
Finding the right insurance provider and the right policy are key to having the most cost-efficient and comprehensive coverage. When shopping for an insurance policy, there are a few steps you should take to make sure you find the right one for you.
1. Compare Insurers Statewide
You should always beware of scams when shopping for insurance. Look for creditworthy providers, in addition to good deals. Knowing the average cost of insurance in your area will help you know what kind of premium rates you should be looking at.
The Massachusetts Division of Insurance can provide a rating of each licensed insurance company. Here, you can find and compare the average costs of homeowner’s insurance in different counties and cities throughout the state.
2. Check on Company Health
It’s also a good idea to check up on the financial health of your insurance provider. You want to be sure that if you need coverage, your provider will actually be able to provide it.
The National Association of Insurance Commissions provides ratings of different insurance companies based on their financial health. Certain websites such as A.M Best and J.D.Power provide ratings and reviews from current policyholders.
Reading up on consumer reviews can help determine the quality and level of service offered by potential insurance companies.
3. Find Out How Your Insurer Operates
To cut costs, some insurance companies will outsource claim handling to third-party call centers. This could lead to impersonal and difficult communications.
You want to seek out a provider who actually uses a licensed adjustor to handle claims responses. A good provider should have a proven track record of fair and timely settlements.
It’s also a good idea to find out your potential provider’s stance on holdback provisions. These are policies in which insurers will hold back a portion of settlement payments until the homeowners prove that repairs have begun.
4. Find Out Current Policyholder Satisfaction
Checking a provider’s retention rates can tell you a lot about their current level of policyholder satisfaction. An independent insurance agent could help you do this kind of research. Most companies have a retention rate from 80-90%.
Reading reviews and testimonials for insurance providers could also be a worthwhile endeavor. These can help you get a better idea of what exactly it’s like to work with a provider. It can also reveal the level of satisfaction consumers have with their policies.
5. Review Multiple Quotes
When it comes to homeowner’s insurance, protection needs vary widely. This means that there are many customizable policy options you could have. That leads to irregularities in rates.
Reviewing multiple quotes from different companies to compare will help you find the best rate. You should try to get about 5 different quotes to compare and review.
It’s a good idea to request quotes from companies you already have a previous relationship with. In some cases, these companies could offer discounts for returning customers.
If you’re a senior or a professional working from home, you may receive lower premiums or special rates. This is because providers perceive less risk of theft in homes where people spend more time. Be sure to have your insurance agent include this information when getting quotes.
6. Look Past the Price
While doing your research, the price of your premium is important. But, it’s not the only factor you should consider. Available coverages and reimbursement limits are just as important as your premiums.
You want to be sure your homeowners’ insurance policy is working for you. Unrealistic coverages or limits could end up adding extra costs that a higher premium might be able to cover. What matters is finding the best deal for your particular situation.
7. Speak to a Real Professional
Talk to an independent insurance agent if you want to find the best possible deal. This could mean added fees, but securing the most appropriate homeowner’s policy for your situation will definitely save you money in the long-run.
An insurance agent can also help you compare different scenarios. This will leave you most prepared and protected from any number of potential disasters.
Frequently Asked Questions
Shopping for homeowner’s insurance can be a complicated process. Even with the information, you may still have a few questions. Well, you’re not alone.
When it comes to homeowners insurance customers, here are the top 10 most frequently asked questions:
1. How Does Homeowners Insurance Actually Work?
Homeowners insurance ensures that the money for extensive repairs won’t have to come out of your pocket. Instead, you’ll be able to file a claim in the event of damage or destruction.
In the event of emergencies or thefts, all you have to do is contact your provider. They’ll help walk you through the claims process. Adjusters work with you to determine your compensation by assessing the damage.
The benefits you’ll get from your provider will depend on several factors. These include:
- The limits on your policy
- Your deductible before coverage kicks in
- Which type of coverage you have
2. What Makes Homeowners Insurance Important?
Homeowner’s insurance isn’t required by the state of Massachusetts. But, if you want a mortgage, most lenders will require a fully insured home.
Having protection for everything from damage to liability coverage is a great way to protect your home. Even if you don’t own your home outright, you’ve still probably put a lot of money into it. Homeowner’s insurance can help you ensure your investment is safe.
3. When’s the Best Time to Get Homeowners Insurance?
If you’re purchasing your home with the help of a mortgage lender, they’ll require you to secure homeowners insurance before closing on your home.
You want to be sure that you have plenty of time to do comprehensive research. Shopping around is the best way to make sure you find the right policy for you.
4. How Much Will Homeowner’s Insurance Cost?
The value of your house and possessions and the amount of coverage you desire are the biggest determining factor for your premium rates. The more valuable, the higher the premium. The other factors mentioned in the guide above will also play a part in determining your rate.
Homeowners’ insurance policies can vary drastically. This means rates can vary drastically, as well. Because of this, rates could be anywhere from $400 to $1600 or more. Additional coverages will increase these costs, but they’ll also provide you with more protection.
5. Is Homeowner’s Insurance Tax Deductible?
Being a homeowner entitles you to other tax benefits. Unfortunately, homeowners insurance is unrelated. Insurance premiums are only tax-deductible in special circumstances.
Landlords and homeowners who use their homes to conduct business may be able to deduct a portion of their insurance policy. Speaking to a tax advisor can help you determine what qualifies you for specific deductions.
6. Does My Mortgage Payment Include Homeowner’s Insurance?
Mortgage payments do not include homeowner’s insurance. The exception is if the house is currently escrowed.
In fact, it is common practice today to create an escrow. Often, these will cover mortgage payments, homeowners insurance, and occasionally even property taxes.
Mortgage payments do usually include mortgage insurance, however. Note that mortgage insurance is not the same as homeowners insurance. Instead, mortgage insurance insures the property in the event that that you default on your loan.
7. Can Providers Cancel My Coverage?
Your insurance company does retain the ability to drop you as a client. However, this is different from being “canceled.”
If “dropped” by an insurance company, your insurance will not be renewed. You’ll retain your coverage until your policy expiration date. After that, you’ll need to find a new provider.
If you’re dropped, insurance providers will give you adequate notice. This will allow you plenty of time to find a new provider.
Cancellations, however, can occur at any time as long as you receive notice. Providers must have a specific reason for the cancellation. Reasons could include missed payments, increased risk, or misrepresentation of your situation.
Usually, insurers will provide 10-30 days of notice in the event of a cancellation. However, the amount of notice you receive will generally depend on the reason for the cancellation.
8. How Much Coverage Do I Need?
Your insurance policy should provide enough to cover:
The Structure of Your Home
Your insurance should cover at least the replacement value of your home. This is defined as the cost of building your home from scratch at current rates. Getting an accurate assessment of your home’s value is pivotal.
It’s also important to note that your home’s selling value is not the same as the replacement value. Usually, these will require two separate appraisals from different professionals.
The Contents of Your Home
Your homeowner’s insurance also covers your personal belongings. Most policies cover 50-70% of your home’s value. Again, you’ll need accurate appraisals of the value of your belongings.
Keeping a detailed inventory of your valuables can help you determine if you’ll need to purchase more coverage.
Personal injury lawsuits can be costly. This is especially true if you must pay out-of-pocket. While a standard $100,000-$300,000 policy is decent protection, you might want to consider up to $500,000 in coverage to keep yourself protected.
9. How Do I Pay My Homeowners Insurance?
Lots of policyholders pay their insurance companies directly. But you can also pay via escrow in order to tie all your payments together. This allows you to work with one company and usually offers smaller incremental payments.
Talk to your mortgage lender to determine if escrow would be a good idea for you.
10. Where Can I Purchase Homeowners Insurance?
The first step to acquiring homeowners insurance is to assess what you need from your policy accurately. Then, shop around for multiple quotes from reputable insurance providers.
Insurance agents can help you compare policies and companies. When you’re ready to get a quote, reach out to LoPriore to find out how we can help protect your home.
Coverage You Can Count on
Now that you have more information on homeowners insurance, you can make the right decision for your home and your family. If you’re ready to find the best homeowners’ insurance, you need to work with the best companies.
Request a quote from LoPriore to see how we can help you find a cost-effective, comprehensive homeowners insurance policy.