When you’re looking to buy your first home, understanding the world of homeowners insurance is a must. That way, you’ll be ready to secure the coverage you need, ensuring you can protect your new home.
If you’d like to learn more, here is our guide to homeowners insurance.
Why You Need Homeowners Insurance
Many people wonder, “Do you have to have home insurance?” Whether you do or not may depend on several factors, including whether you have a mortgage or how much you have set aside in savings.
However, homeowners insurance is typically a good idea for everyone, not only first-time home buyers.
Generally speaking, there are two main reasons to have homeowners insurance. The first is to protect your personal property. Without coverage, damage to your house or items within it is entirely your financial responsibility.
Since replacing everything you own and handling all repairs is likely cost-prohibitive, homeowners insurance gives you a critical source of financial support. Depending on your policy type and coverage levels, it may address some, nearly all, or all of the associated expenses.
Second, if you have a mortgage, your lender usually requires homeowners insurance. While you’re paying down the loan, your house functions as the collateral. Lenders mandate that you maintain coverage to protect their investment, ensuring your property’s value can be restored after a qualifying incident.
Lenders can set minimum home insurance requirements. Usually, you have to have a qualifying policy set up before you finish closing on the house. That way, it takes effect as soon as you assume ownership.
What Does Homeowners Insurance Cover?
Many people have questions about what homeowners insurance policies cover. Some common ones include:
- What does homeowners insurance cover for plumbing?
- Does homeowners insurance cover foundations?
- Do you need separate roof insurance, or are you protected under your main policy?
- Is wind, hurricane, or flood insurance really a necessity?
- Are my high-value computers, jewelry, art, and antiques covered?
If you’re asking questions such as those, it’s essential to understand what a homeowners insurance policy typically covers. In the most general sense, homeowners insurance coverage provides you with two things: dwelling protection and personal property protection.
Dwelling protection focuses on your house and certain other structures. It covers the entire building, including the foundation, walls, and roof. If a qualifying event occurs and your home is damaged or destroyed, your policy provides you with financial support to handle repairs or replacements.
Personal property protection covers your belongings. That can include furniture, electronics, clothing, and similar items. If those items are damaged in a qualifying event or stolen from your home, you’ll get financial assistance to replace or repair the items.
While what’s considered a qualifying event can vary depending on your policy, most offer coverage for:
- Fire
- Smoke
- Lightning
- Hail
- Wind
- Theft
- Vandalism
It’s important to note that there are always exceptions. Certain events are exempt from coverage. Additionally, some property isn’t included within a traditional policy. In those cases, you’ll need supplemental coverage or specialty policies to receive financial support after an incident.
Often, the easiest way to understand what a homeowners insurance policy will or won’t cover is to look at the various kinds. That way, you can learn more about their purpose and how they may fit together.
Broad Homeowners Insurance Types
When people think of homeowners insurance, it’s usually broader policies that come to mind. However, many people are surprised to learn that not all policies are created equal. Here’s a look at the two most common options and how they stand apart.
HO3 Insurance
An HO3 insurance policy is the most common form of homeowners insurance. It’s available for nearly any kind of home and includes coverage for the dwelling and most types of personal property.
When it comes to dwelling protection, it’s on an open-peril basis. That means damage caused by any event that isn’t explicitly listed as an exception in your policy is covered.
However, personal property is protected on a named-peril basis. You’ll only receive compensation for damages if your personal property is harmed by a specific event listed in your policy. Additionally, you may need to show that the damage occurred during a qualifying event. The burden of proof can fall on your shoulders, which could make some claims harder to get through.
HO5 Insurance
An HO5 homeowners policy also protects your dwelling on an open-peril basis. However, this option stands apart because personal property is also covered on an open-peril basis. Unless an event is expressly excluded, you have coverage. Additionally, the burden of proof typically won’t fall on you, making claims easier to manage.
Specialty Coverage and Optional Supplements
If you’re wondering, “What does homeowners insurance not cover?” it largely depends on your policy. However, one way to get a general idea is to understand the various kinds of specialty coverage and optional supplements that are available.
In most cases, these specialized policies and additions close gaps in broader homeowners insurance policies. That way, you can get more comprehensive protection when using the coverages together.
Here is a look at some common specialty policies and optional supplements.
High-Value Item Riders
Many homeowners have high-value items like jewelry, antiques, art, firearms, and high-end computers. While high-value items do receive some protection under the personal property insurance portion of your homeowners’ policy, your base coverage won’t usually cover the entire value of the item.
Instead, there is a monetary compensation limit set within your policy. Once that limit is hit, you’ll receive no more compensation for that loss.
For example, imagine you have a jewelry piece valued at $3,000. Suppose the per-item limit in your base homeowners policy is $1,500, and you have no supplemental coverage. In that case, you’d only receive $1,500 from your insurer if the item is damaged or lost during a qualifying event.
However, that doesn’t mean you can’t get coverage for the total value. With a high-value item rider or endorsement, you can purchase supplemental protection, ensuring the entire value is protected under your policy.
Flood Insurance
Many homeowners insurance policies cover water damage from accidental appliance overflows, frozen pipes, heavy rain, and similar activities. However, flood-related damage is almost universally excluded from traditional policies.
If you want coverage for floods – something that’s highly recommended – you’ll need a separate flood insurance policy. Often, the simplest way to get the protection you need is through the National Flood Insurance Program.
That program is the fastest way to find FEMA-approved flood insurance providers, making it an ideal place to start. However, you can also speak to your current insurer, as they may also have that kind of coverage available.
Windstorm Insurance
If you live in certain states, your traditional homeowners’ insurance might not cover damage caused by weather events that include high wind. Often, that’s more common in hurricane or tornado-prone areas.
When your main policy excludes windstorm damage, you usually have two options. First, you can see if there is a windstorm endorsement available. Second, you can explore alternative sources. For example, Texas residents may be able to secure coverage through the Texas Windstorm Insurance Association (TWIA).
Earthquake Insurance
Like wind and flood insurance, earthquake insurance is a kind of specialty coverage. Most traditional policies don’t cover earthquake-related damage, even for people who don’t live in a known earthquake-prone area.
What you need to do to get coverage can vary. In some cases, a rider through your current provider is enough. However, if you live in certain areas, you may need to use a state-based program. For example, Californians may have to secure a policy through the California Earthquake Authority, as many traditional insurers don’t offer earthquake coverage in that area.
