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If you’re a new or prospective homeowner, your mortgage lending company will likely require that you obtain home insurance, also known as homeowner’s insurance. While the policy itself is not required by law, having home insurance is still highly recommended: it can protect you from enormous financial loss as well as legal woes. Picture it this way, if you lost your home and everything in it, would you have the means of starting all over? Hence why home insurance is an especially crucial coverage homeowners should have. It’s not a luxury, but a necessity. Read on to learn all about home insurance.
What Is Home Insurance?
What is home insurance? It’s a coverage that is designed to protect you, your property, and possessions if an event that is under your policy results in damages to, or destroys your home. Home insurance also provides coverage to you if another individual sustains injury on your property.
What Does Home Insurance Cover?
Home insurance covers your home, other structures on your property (such as a shed or guest house), and personal property, while also providing liability protection should someone sustain injury while on your property. The most standard coverages are described below.
Personal Property Coverage
If your home and covered property sustains damage or destruction as a result of fire, hail, lightning, etc. your insurance company compensates you for the costs of repairing damage or rebuilding your home. In addition to covering physical structures such as your home, personal property coverage also protects your possessions within the home. For example, if your TV or laptop suffers electrical damage due to a lightning strike, personal property coverage pays to repair or replace the damaged items.
Personal liability coverage protects you from lawsuits filed by others as a result of injury or damage sustained while on your property. For example, if one of your party guests slips on your icy driveway, injures their hip, and tries to sue you, you’ll be covered. This type of coverage can also extend to pets. If your dog or cat bites your neighbor, your insurer will be the one to pay medical expenses. Experts usually recommend having $300,000 worth of coverage, though coverage low as $100,000 is available as well.
If you have other structures on your property such as a tool shed, fencing, a detached garage, etc. other structures provides coverage. For example, if heavy winds and hail damage your fencing, other structures may help in paying for repairs.
Loss of Use
Should your home become uninhabitable due to damage or destruction that is covered by your policy, loss of use pays for ALE (additional living expenses), such as staying at a hotel until your home is rebuilt. Other living expenses, such as going out for meals, are covered as well, but it is important to note that Loss of Use has limitations, and may even have a time limit.
How Much is Home Insurance?
How much is home insurance? The answer is, it depends. Home insurance premiums are determined by location and what exactly your policy is covering. In 2021, for a home with a dwelling coverage limit of $250,000, the average annual premium cost is about $1,312, or $109 per month. Prices change based on insurance company used to provide coverage, size of home, extent of policy (replacement cost or actual cash value), and many more factors.
How Much Home Insurance Do I Need?
Your home is a large investment. Likely, it’s the largest investment you’ll ever make. So, it’s absolutely crucial to know how much home insurance you need. The answer varies by homeowner, but think of it this way. You want enough coverage to rebuild your home, replace your possessions, cover any damages or injury that occur on your property, and reimburse any living expenses, should you need to put in an insurance claim on your home.
Home Insurance Myths
There are several myths about home insurance regarding what is and is not covered. Of course, ever policy and company is different. However, knowing the facts behind these home insurance myths not only helps you better understand your policy, but also saves you money.
Myth #1: Home Insurance Covers Flood and Earthquake Damage
Too often, folks assume that damages or destruction caused by flooding or earthquake are covered by home insurance. Flood insurance and earthquake insurance are both separate policies from home insurance, so if you live in area prone to these natural events, you need to consider obtaining these coverages.
Myth #2: All My Belongings Are Covered
While home insurance covers many of your belongings, valuable items or collections such as jewelry and furs are usually not covered in a standard policy. You need additional coverage for high-value items. Standard home insurance policy has limits, so be sure to fully read and understand what is and is not covered by your policy.
Myth #3: Home Insurance Covers Home Maintenance Issues
It’s also important to note that poor home maintenance is not covered by home insurance. The upkeep and care of a dwelling is the responsibility of the homeowner. Not maintaining a home is considered “neglect,” and voids policy coverage for damages sustained from the neglect. For example, mold infestation is not covered by most base home insurance policies (though they are sometimes offered as a separate rider). The idea with mold is that since it takes a long amount of time to grow, and homeowners are responsible for preventative maintenance measures with their home, mold is excluded.
Myth #4: My Medical Expenses are Covered by Home Insurance
Don’t confuse the medical portion of liability insurance within your home insurance policy as something that covering injuries sustained by you. Instead, this portion of the policy is to protect you should a guest injure his or herself on your property. When you injure yourself on your property (an in-home injury), your health insurance – not home insurance – covers you.
Myth #5: My Policy Will Replace My Belongings Like New
Refer to your policy once again to understand exactly how your possessions will be replaced should your home sustain damage. Your belongings may be covered by actual cash value (ACV) instead of replacement cost. This means your belongings are considered at their current, depreciated value, not at what they originally cost when brand new. In other words, what you receive for your items may not be enough to fully replace them.
Myth #6: An Inventory List of Belongings is Unnecessary
Homeowners may assume compiling an inventory list of their belongings is unnecessary, but the opposite is true. An inventory list serves as your proof of ownership. Should you file a claim, the insurance company will ask for a list of the items damaged and/ or lost. Creating a thorough inventory list before a damaging event can help you maximize reimbursement. It also helps you avoid the headache of trying to remember what was damaged, and their monetary value.