There’s truly no place like home, and that’s why it’s so important to protect it. For many, it’s a necessity when purchasing a home, but with a large majority of assets and wealth being tied to our homes, it’s one of the most important financial and personal protections you can have.
When it comes to homeowners insurance, knowing how much you need or what to look for isn’t always easy. This guide should be able to help you understand how the coverage works and what to look for, whether you’re looking for a new policy or evaluating your current one.
Four Basic Types of Homeowners Insurance
There are four basic types of coverage that come with most home insurance policies:
A main component of home insurance policies, dwelling coverage helps cover the costs to repair or rebuild the physical structure of your home in the event of a loss in which you have no control, including fire, wind, theft and vandalism. This portion of the policy can also include coverage for detached structures on your property.
Personal property insurance coverage helps protect personal belongings such as furniture, clothing, sporting goods or electronics in the event of covered damages or theft.
Personal liability insurance provides coverage for bodily injury and property damage sustained by others for which you or covered residents of your household would be legally responsible for.
Loss of Use & Additional Living Expenses
This portion of coverage will pay for your lodging, meals, animal boarding and other expenses in the event that you are unable to stay in your home due to a natural disaster or other unpredictable events over which you have no control.
There are many other additional coverages, like umbrella insurance, which can be added to these policies. Umbrella insurance—also referred to as excess liability insurance—protects you and your assets when you’ve exhausted the limits of your home insurance.
How much home insurance coverage do I need?
When deciding on a homeowners insurance policy or making sure your existing policy meets your current situation, you should consider your needs as they relate to each of the four basic types of coverage. It’s important to know that your insurance isn’t necessarily based on the current value of your home or your mortgage—it’s based on what it would cost to recreate your home in the event of a disaster.
The coverage limits on your home insurance policy are based on your dwelling coverage, while the limits for other coverages on your policy are typically calculated as percentages of your dwelling limit.
For personal property coverage, you’ll want to take inventory and estimate the costs of all your belongings. It’s easy to underestimate how much we own, so it’s important to take a detailed inventory to make sure you have enough coverage in the event of potentially losing it all.
Liability loss claims can often be the most expensive home insurance claim. When deciding how much personal liability coverage you need, you’ll need enough to cover your total combined assets. You’ll also want to consider the liability risks attached to your home, such as something like a pool, trampoline or treehouse. A lawsuit could leave you responsible for medical expenses, legal costs and more, so it’s important to have sufficient liability coverage. Luckily, it is typically one of the cheapest coverages under home insurance policies.
Your Home Insurance Deductible
Your home insurance deductible is what you pay before your insurance coverage kicks in. Deductibles typically range from $500-$2,000, with some companies offering even higher deductible plans for those wanting a lower premium (monthly payment). Insurance companies often consider those who are willing to pay a higher deductible to be less of a risk to insure. If you opt for a higher deductible, consider creating an emergency fund so you’re prepared if or when you need to pay your deductible.
Bundling—also known as multi-policy discount—can often save you money by going through the same carrier for more than one type of insurance. Oftentimes, insurance policies you’re required to have are the easiest to bundle and save on—think home and auto insurance—so if you currently have a house and car and don’t bundle, you could potentially be missing out.
When to Update Your Homeowners Insurance Coverage
Even if you aren’t planning to update your coverage immediately, it can be beneficial to at least review your current policy on a regular basis. It’s especially important to make sure your coverage meets your needs if you find yourself in one of the following situations:
- Buying a new property or a second property
- Renting out your property
- Buying one or more big-ticket items
- Adding security features
- Adjusting the amount or type of pets you own
Not only will the right insurance policy lessen the impact of any financial stressors associated with these losses, but it will also provide invaluable peace of mind. At SelectQuote, we can help you through the complexities of purchasing home insurance by comparing some of the most trusted carriers in just minutes. We can answer your questions, explain the details of your coverage, help you find opportunities for discounts and more.