Understanding and Choosing Homeowners Insurance – A Beginner’s Guide

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Homeowners insurance, home insurance, or however you decide to call it has long stopped being a luxury, but rather a necessity. While most homeowners are aware of this, there are very few people that actually understand what a home insurance policy does, where to shop for one, how to compare prices and, all in all, how to take control of the process.

Most of the time, especially when it comes to first-time homeowners, the only factor taken into consideration when purchasing home insurance is money, but there are other aspects that are even more important. This is why we have put together this guide to help you understand what home insurance is and what factors you need to take into consideration when purchasing one.

What Is A Homeowners Insurance?

A homeowners insurance is a form of property insurance that covers private homes and their contents. Because home insurance is a multi-line policy, the payments you make to the insurer covers both property, as well as liability insurance. Some insurance policies also cover additional expenses, such as staying at the hotel during home repairs that follow a disaster.

The reasons why you should buy homeowners insurance are many. For starters, it will cover the physical structure of the house, as well as personal property, in case it gets damaged. Then, there is the liability coverage, which means if a person that is not covered by your insurance gets injured, the policy will cover the legal responsibilities. Additionally, if adjacent properties or goods are damaged by, let's say, a tree from your property falling over, the coverage extends to them as well.

If you are planning on getting a mortgage from a bank, keep in mind that most lenders will require you to purchase home insurance as well, at least for the duration of the mortgage.

Types of Homeowners Insurance

Another thing that homeowners are not aware of, is that there are many types of insurance policies, depending on your needs. Some insurers will try to sell you a certain type of insurance, but if you do your homework, you will know exactly what to ask for and what will be included in your home insurance cost. The type of policies are:

●        Basic homeowners policy (HO-1): a basic policy, that will protect homeowners against 10 most basic perils, including smoke, lightning, explosions, and damage from aircraft.

●        Broad form policy (HO-2): this policy covers the 10 basic perils mentioned above, plus additional ones, such as accidents from electric currents. This covers your structure, personal belongings, as well as personal liability.

●        Special form policy (HO-3): everything an HO-2 policy covers, plus more, including injuring someone else or damaging adjacent property.

●        Tenant's Form (HO-4): commonly known as renter's insurance, this type of policy covers a renter's personal belongings, as well as personal liability.

●        Comprehensive form (HO-5): a more comprehensive policy type, similar to the Special form one, which can provide financial protection from all perils, except those stated as not covered in your policy.

Additionally, there are 4 more types of policies that target more specific situations, such as a Condominium Unit Owners Form, which covers those living in condominium units, mobile home policies, as well as older home policies.

Homeowners Insurance Coverage

Above, we have mentioned that, depending on your policy, your insurance will cover damage caused by specific perils. These perils can vary depending on location, but for most policies, it includes:

●        Theft and vandalism

●        Water damage caused by a ruptured pipe

●        Damage from cars, vehicles, or aircraft

●        Weight of ice and snow

●        Damage from trees or other falling objects

●        Damage from fire, smoke, wind, lightning, explosions, and hail

In some areas, common perils occur frequently, which is why they are not included in basic coverage policies. The most notable ones are:

●        Damage caused by pets, rodents, insects or birds

●        Land movement (earthquakes, mudflows, and landslides)

●        Floods or sewers that back up into the home

●        Pollution damage

●        Common wear and tear damage

●        Intentional damage brought to the house

While perils such as intentional damage or common wear and tear are easy to understand, most people get confused when it comes to what type of water damage perils gets covered by insurance. For example, sudden damage, such as that caused by a pipe breaking down in your house, will be covered by insurance, while gradual damage, such as that caused by water slowly rising in your basement will not be covered.

Average Cost of Homeowners Insurance

It is very difficult to predict exactly how much you will have to pay for home insurance, as it depends on many factors. This is why it is very important to do your research and compare prices before rushing to make a purchase. Different insurers will have different prices for the same coverage, so when you go to talk to an insurer, make sure you know exactly what you are paying for. You can draw out a list of questions to ask the insurer, such as:

-          What are the perils that my home insurance does and does not cover?

-          How is my credit history affecting the price of my premium?

-          Can you help me determine how much risk is my home at and what type of coverage to purchase?

-          How much liability coverage should I consider?

Factors That Influence Your Premium

As I mentioned before, there are many factors that influence your premium. Some of the most important ones are:

-          Home rebuilding costs

-          The construction materials used

-          The proximity of your home to water sources or the firs department

-          The age of your home, as well as its overall condition

-          Claims history in your neighborhood

-          High-risk outdoor amenities, such as playground equipment, swimming pools or other equipment that may cause injuries

-          Type of pets owned: some insurers refuse to insure people owning certain aggressive dog breeds, such as Akita, Presa Canario, and Rottweilers.

Far too many people consider insurance as just another piece of paper they have to sign. In reality, insurance is much more and, if you pay attention when choosing one, you can rest assured that you will get the full value out of your payments.