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Home Insurance Basics

Whether you are purchasing homeowner’s insurance for the first time or renewing your policy, it is important to know what homeowners insurance is and why you may be required to obtain it.

In addition, it is important to know what the benefits for this type of insurance are, and how you can find the level of coverage that you need for a price you can afford. There are a variety of homeowner’s insurance policies that provide different levels of coverage. While most homeowner’s insurance policies will cover perils such as fire, smoke, lightning and hail, other causes for a claim, including theft, vandalism and falling trees are often considered optional.

It is also important to be aware of coverage that your insurance policy will most likely not include, such as flood, earthquakes and nuclear damage. Finally, when obtaining a policy for the first time or renewing your policy, it is crucial that you know how to assess the value of your home, as well as be aware of how the value will affect your policy and insurance premiums. To learn more about the basics of homeowner’s insurance, review the sections below.

Home Insurance: Need-to-Know Information

Homeowner’s insurance is a common and invaluable purchase for both homeowners and renters. If you have a mortgage on your home, your mortgage lender will most likely require that you have a certain level of coverage. Should you fail to obtain coverage on your own, your lender will obtain insurance for you and add the premium to your monthly mortgage payment. In cases such as these, premiums for homeowner’s insurance are generally far higher, and they may not provide nearly as much coverage as you would receive had you purchased your own policy.

Renters may generally consider renter’s insurance as a means to protect their assets and personal property. Additionally, there are more and more landlords that require a tenant to acquire insurance as a condition of the lease.

One of the first details that you should learn about when it comes to homeowner’s insurance is the perils that are included in your policy. A peril is a common insurance term that refers to the reason or risk of loss or damage, such as wind damage, fire damage or theft. You should always ask your home insurance agent about the perils that are included in your plan and seek additional coverage if needed. For example, if you live in a tornado-prone area, you will likely desire coverage that protects against wind damage.

When seeking an insurance quote, it is important to shop around and review policy offers from several insurance agencies. It is also important to ask questions about the perils that will be included in the policy, the amount of coverage that will be provided, how your credit history affects your insurance premiums and how long the insurance agent and agency has been licensed in your state.

Homeowner’s Insurance Coverage

As mentioned previously, your homeowner’s insurance policy may include a number of perils and types of coverage, depending on the policy that you purchase. Generally, as long as a peril is covered under a home insurance policy, home insurance coverage will include:

  • The dwelling, referring to both your home and attached structures such as heating systems, plumbing, fixtures and electrical wiring.
  • Other structures on the property, such as detached garages, guest homes and tool sheds.
  • Personal property.
  • Loss of use, referring to the additional expenses that you may incur while your home is being replaced or repaired, such as hotel expenses.
  • Personal liability.
  • Medical payments.

Additionally, your homeowner’s insurance policy will have coverage limitation amounts for each of the above types of coverage. The amount of coverage will generally be a percentage of the overall dwelling coverage that you choose to purchase. Additionally, you will have a deductible should you ever need to file a claim. This deductible amount may either be a percentage of your claim or a dollar amount, depending on what is outlined in your policy. It is worth knowing that lower deductibles will be accompanied by higher monthly premiums.

What is Not Covered by Homeowner’s Insurance

While it is important to know what is covered in homeowner’s insurance policies, it is equally important to be aware of what is not covered by most policies. Ground movement (sink holes and earthquake) perils and flood perils are almost never included, contrary to common belief. Additionally, there are a variety of perils that may be considered optional for your policy, requiring you to pay a higher premium for coverages including:

  • Vandalism and theft.
  • Trees and other falling objects.
  • Damage that occurs from the weight of sleet, snow or ice.
  • Sewage backup.
  • The freezing, rupturing or sudden and accidental overflow from a fire sprinkler system, air conditioning unit, plumbing system, household appliance or heating system.

If you run a business from your home, your business items, including laptops or work-related computers, may not be covered by your home insurance policy. While most policies include liability coverage for injuries sustained from your pets, there are a variety of insurers that will blacklist certain breeds such as wolf hybrids, or they may blacklist a dog based on previous acts of aggression within the dog’s history.

Trampoline and pool-related incidents are also generally exempt from coverage due to statistics related to injuries and deaths within the United States. Most insurers will include wind damage, unless you live in a hurricane-prone state. Residing along the Atlantic of Golf coasts will generally require that you pay additional premiums for this type of coverage if it is available through an insurer.

Understanding the Value of Your Home and How It Affects Your Premium

In order to accurately determine the level of homes insurance coverage that you should purchase, it is important to know how to assess the value of your home. While there is a specific amount that goes towards the square footage of your home, other factors that help to determine a home’s value include:

  • The materials that the home was built with, including the materials used for the roof.
  • Special flooring material, such as custom floors or hardwood floors.
  • Whether or not you have any updated cabinetry, fixtures or appliances.
  • Exterior features such as siding, decks, patios, stonework and high-end windows.
  • The value of your possessions.

It is recommended that you speak with several different insurance agents from different agencies in order to understand the value that the insurance company will place upon your home. If you disagree with the amount that you are quoted, you can hire a professional appraiser to perform a thorough inspection of your home. When determining the amount of dwelling coverage that you purchase, it is important to ensure that you purchase enough to cover the replacement of your home in the event of a severe peril. Furthermore, the amount of coverage that you purchase toward your dwelling will determine the amount that is allotted to your personal property, other structures and loss of use.

The value of your home is just one of many factors that will determine your monthly insurance premium. Other factors include:

  • Your credit history.
  • The distance from your home to fire protective services or a water source.
  • The age and condition of your home as, more often than not, older homes or homes that are in poor condition will be accompanied by higher premium rates.
  • The deductible that you select for your policy.
  • The history of claims for your home and the homes in your community.

After obtaining home insurance for the first time, it is important to periodically review your policy in order to ensure that the coverage you have will still provide enough aid to replace your home if needed. Policies should always be reviewed after renovations, expansions or further gain of personal property and assets.

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