Homeowners Insurance

It pays to shop around.

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    There are few things as gratifying as becoming a homeowner and finally being able to call a place your own. But while owning your own place is liberating in many ways, it doesn’t free you of all responsibilities. 

    Having a home exposes property owners to a number of risks, including property damage, theft and accidents for which they are liable. With this in mind, having home insurance is critical to protecting oneself from life’s unexpected events, regardless of the form in which they come.

    What is the purpose of having home insurance?

    Home insurance is a financial policy that protects a homeowner if their home is damaged, burgled or the site of an accident suffered by someone who doesn’t live in the residence. In cases, the policyholder is paid a sum of money to cover any repairs, replacements medical or legal costs that arise as a result of the incident.

    Generally, if a homeowner has taken out a mortgage to help finance their home, they’re required by the lender to have home insurance. This is because the company that provided you with the money to buy your home still technically owns it until you pay them back in full with interest. Their requiring you to get homeowners insurance is a measure designed to protect their investment and protect you from yourself. 

    Having said all that, while lenders do require homeowners to have home insurance, they don’t always put stipulations on the type of homeowners insurance or coverage level that you must have. 

    What does home insurance cover? 

    A standard homeowners insurance policy protects the physical property itself from damage, (dwelling insurance), the valuables stored inside of the property and liability if a visitor is injured on the homeowner’s property. A policy also takes into account time that the policyholder may have to spend elsewhere while their home is being fixed. This is known as loss of use coverage. 

    These types of coverage sometimes come with qualifiers, which further explain the circumstances under which a physical structure will be repaired or valuables will be replaced. In the case of dwelling insurance, for example, a coverage provider will typically present a policy with named perils or open perils. A named-perils policy issues payouts when property damage happens as a result of a specifically identified peril, such as hail, fire or lightning. An open perils policy covers any disaster unless otherwise specified in the policy.

    Another facet of a home insurance policy is the coverage limit that a user pays for. Effectively, this stipulates the value limit of the damage a home suffers that the insurance provider will pay for. If a home has a dwelling coverage limit of $500,000, that means that an individual’s home insurance policy will pay out for damages to the home valued at $500,000 or less. Any damage incurred valued at more than $500,000 is the responsibility of the homeowner to pay for out of pocket. 

    To determine rebuilding costs to damaged structures, providers consider actual cash value (ACV) and replacement cost value (RCV) estimates. 

    Actual cost value is the total cost to rebuild a damaged structure minus the depreciation of that structure. If a shed is struck by lightning but the shed had wood that was rotting before it was damaged, the actual cost value  would be the cost to repair the shed minus the value of the shed before it was struck. 

    Replacement cost value coverage provides a payout equal to whatever your structure was valued at when you started your policy. Though it comes with a more expensive homeowners insurance cost than an actual cash value policy, a replacement cost value policy ensures that users’ payouts don’t fall prey to property depreciation.

    What doesn’t homeowners insurance cover? 

    As noted above, home insurance policies are typically clear about which hazards are and are not covered with respect to property damage. Much of what is or isn’t included in a home insurance policy will depend on the area in which you live. Areas prone to hurricanes, for example, could be places where coverage providers have you purchase an add-on that specifically protects against such a hazard. 

    It wouldn’t be uncommon to see a home insurance policy that does not cover extreme cases. These could include a demolition ordinance, water damage, earth movement, governmental action or intentional loss, meaning you purposely inflicted damage on your home to collect a payout.

    Homeowners insurance average cost

    Determining the cost of home insurance requires policyholders to take into account a few factors. Much of what goes into a home insurance policy premium is location-dependent. This means that factors that could put a home at risk in Houston may not exist in Los Angeles, making home insurance premiums in Houston more premium than those in LA. 

    Given that a standard HO-2 policy covers such hazards as hail, fire, smoke, vandalism and theft, homes located in areas where such risks are present are likely to be subject to pricier premiums that reflect the home insurance provider’s potential need to pay out policies suffering such damage. 

    According to The Zebra, average home insurance premiums are cheapest in Hawaii ($442 per year) and most expensive in Oklahoma ($4,053). Again, many factors contribute to these rates, but the fact that Oklahoma experiences many tornadoes and earthquakes each year while homes in Hawaii remain relatively free of any natural disasters certainly is reflected in these premiums.

    How to get home insurance

    Ultimately, your home insurance policy is the product of a number of factors. The place your house is located, the items that you choose to have covered and the limit up to which you choose to cover them are all important things to consider when thinking about how much you’ll pay each month in premiums. 

    Because policies can vary from place to place and provider to provider, compare your options before deciding on one policy. By doing this, you can determine which providers will give you the most bang for your buck and make sure that your home gets the coverage it needs.