Buying a home is one of the most significant financial transactions you are going to make in your lifetime. Your house is meant to be your castle, and you need to protect not just the building itself, but everything inside and around it. This is where homeowners insurance comes in play. Although you are not legally required to have it when you purchase a house, you may be setting yourself up for all sorts of trouble if you don’t have it.
Your house is a huge asset that you should protect whenever you can. Having homeowners insurance can give you peace of mind and help you care for that asset and your possessions when a surprise or disaster comes your way.
What is Homeowners Insurance?
Homeowners insurance is a protection plan that can be used in the event of an accident or catastrophe that involves your home. It protects the actual structure and also your belongings inside if a destructive event like a flood or fire happens. When you have homeowners insurance, it is typically called “package policies.” This policy just means that the coverage includes damage to your home and property and your legal responsibility for injuries and other costs to the property that was initiated by you or any family members.
When purchasing homeowners insurance, you should always go by the rule of having enough coverage to rebuild your home should anything happen to it. After disaster strikes, insurance is meant to make you financially whole again.
What is Covered by Standard Homeowners Insurance?
A standard insurance policy typically provides coverage for your personal belongings, the structure of your home, additional living expenses, and liability protection. Let’s take a look at each of these more in depth.
Coverage for Your Home’s Structure— Homeowners insurance pays out for any repairs or reconstruction of your home when it is destroyed by specified disasters listed in your policy. These disasters can include fire, hail, and lightning. It usually covers the garage and other detached structures that are deemed part of the house. It’s important to remember that standard insurance does not cover damages brought on by an earthquake, flood, or normal wear and tear.
Coverage for Personal Belongings— What are considered personal belongings? Clothes, furniture, equipment, and other personal items all qualify under this umbrella. If they are damaged by a fire, hurricane, or other insurable disasters, you can replace those items with what the policy pays out. The coverage doesn’t only pertain to what you have stored inside your home. It can include things that are being held off-site anywhere in the world. Depending on your policy, you have a monetary limit on how many items can be replaced at once. So if you have expensive items like art or jewelry, they are covered, but dollar limits come into play when you file a claim.
Liability Protection— This type of protection covers you if you are being sued for property damage or bodily injury that you or your family members caused someone else. This coverage includes your spouse, children, and pets. For example, if you bring your dog over to your neighbor’s house and they end up knocking over a priceless glass vase, this protection covers you. The liability portion of this plan also pays for court costs and court settlements should you be sued.
Liability usually starts around $100,000. You can purchase more if you feel you need to. Families who have a lot of valuable assets and property can buy what is called an umbrella policy. This coverage covers more in terms of possessions and gives you higher limits. If you are a homeowner who feels they could benefit from this additional coverage, you should have a conversation with your insurance agent.
Another great feature of liability protection is that it covers other people’s injuries that happen in your home. The person just needs to submit any medical bills to the insurance company. No claim is filed against you. This feature only applies to people who aren’t living under the same roof as you. Your family member who lives there can’t submit medical bills due to injury at the house.
Additional Living Expenses— This coverage pays for the cost of living outside of your home when the structure is damaged due to an insurable disaster. This includes lodging, food, and any other expenses that are above your routine living expenses. This payout keeps going until your home is rebuilt.
Not all additional living expense policies are the same, however. The coverage does include monetary and time limits, but it is separate from the amount available for a home rebuild. Your insurance company is still going to pay that cost regardless of if you reached your additional living expense limits or not.
Determining the Amount of Coverage for Your Possessions
How is a homeowner to know if they have purchased enough coverage to cover themselves and their property? The best way to figure that out is by making an inventory list. It is a natural process that is going to help you if and when you need to use your homeowners insurance policy. Here are a few simple steps to follow:
Pick a Location— When you are starting your list, you should work from room to room. Once you are done with one location, you can then make your way to the next. So, if you decide to inventory the kitchen first, start with one cabinet or drawer, and work your way through the area until you are finished. From there, go over any remaining areas that have valuables you want to insure. Don’t forget to include your garage and basement in the inventory. Items that you deem of value should be included.
This moment is also an excellent time to get rid of any items that are no longer useful to you or things that may pose a fire hazard from improper storing. Your home should only contain items that are important to you and your family members.
When you list your possessions, you should separate your newer items from the older ones. This detail adds another level of organization that can come in handy if the time ever comes for you to use your policy.
List the Details— When you record items, include all necessary information. This detail consists of the name of the asset, model number, where you bought it from, the price you paid for it, and any other pertinent information that can help you when you need to make a claim. It’s better to have too much information than not enough. You can always go back and amend descriptions if you need to.
When it comes to clothing, you can list the more expensive items by name and detailed description. The rest of your wardrobe can be written down in more generic terms. Just list the number of pants, shoes, shirts, etc. that you have, and that should suffice.
Large Equipment and Items— Larger items should always have a model or serial number attached to it. This includes kitchen appliances, stereo equipment, and other electronics. This way, you can easily reference the asset when needed. Double-check your policy to confirm that the more significant items are covered in standard coverage. You may need to purchase additional insurance to ensure your bigger assets are protected. This action has to be done before the disaster occurs, so you have to be proactive.
Stored Items— As stated earlier, most homeowners insurance does cover possessions that are stored away from home. Don’t forget to include those items in your inventory as well. If you have valuables kept in a storage facility or other secure location, list the assets just like the others. The more expensive items should get a very detailed description.
Keep Receipts— Don’t forget to keep the receipts of any purchases you make. File them away in an area that is easy to get to when you need them. This paperwork also includes any appraisals, quotes, or contracts. This information is useful when you need to prove the value of an asset.
Take Pictures— When you can, take photos of your possessions. Keep the pictures with your inventory list for visual aid purposes. The images should include individual items and the room as a whole. Larger and more expensive assets should have pictures of all models and serial numbers. You can also take photos of receipts and contracts you have that include your expensive items. When you are done, either have the photos printed out, or keep them on a USB drive or CD.
If you can’t take pictures, you can also consider videotaping a walkthrough of your house describing your assets in detail.
The inventory list should be finished as soon as possible. Of course, it does take time to go through our worldly possessions, but you don’t want to be caught with an incomplete record should a disaster strike your home. Take the time to do it completely, even if it is going to take you a few days.
When you are done with your list, make sure to keep the record safely filed. You may want to make a duplicate copy to be kept away from home. Also, keep your list updated as time goes on. You may need to go over your inventory every few months as you get rid of and purchase new items for the home.
After you are done with your inventory list, you can quickly determine how much coverage you need. Add all of your items together to give you an approximate dollar amount of how much your possessions are worth.
Figuring out how much coverage you should have for your home’s structure is a bit more involved. There are a few points to go over before you can determine an amount. Following is a summary of how to come up with appropriate insurance coverage for the structure.
Determining Adequate Coverage for Your Home’s Structure
When you need to figure out how much insurance you need for your home’s structure, use these two guidelines:
- Square footage
- Construction costs
A simple rule to follow is to purchase insurance that is enough to cover every square inch of your home. You can multiply the square footage by the local building costs for the home of the same size. Local construction costs do change, so make sure you update the amounts at least once a year.
You can reach out to a local home builder, real estate agent, or insurance agent to help you figure out construction costs on a home. Take into account the age of your home, style of the house, and all its features. Improvements to the home should also be noted and factored into the final amount.
Homeowners with older homes need to note that insurance companies typically don’t replace hard to come by house features. Moldings and intricate carvings are expensive to rebuild or replicate. In this case, you may need a modified replacement policy. With this coverage, the insurance company doesn’t replace the older features, but instead rebuilds the home by using materials used in today’s construction world.
As time goes by, inflation can and does affect the cost to rebuild a home. If you are going to be living in your current home for a long time, you can add an inflation protection clause to your insurance policy. This guard adjusts the limits to reflect current prices and local rebuilding costs. When you renew your policy, the amounts automatically adjust.
When you purchase a home, you need homeowners insurance to protect you, your family, and your assets. If your house sustains damages or someone gets hurt on your property, you need financial protection that can make you whole again. Make sure you know your lender’s requirements when it comes to homeowners insurance and purchase the right amount of coverage to give you peace of mind. You don’t want to be caught off guard when a disaster strikes. Becoming a smart homeowner starts with buying the right insurance for your home and possessions.