Homeowners Insurance 101: Everything You Need to Know
Whether you’re in the market for your first home or you’ve owned your house for years, you probably already know that homeowners insurance should be on your list of considerations. Understanding the basics of what goes into homeowners insurance and how different policies work will only make it easier for you to choose the right coverage to protect your home and family.
Below, we explore the topic of homeowners insurance and answer common questions you may have about it, including how it works, what it does (and doesn’t cover), the different types of policies you may encounter, and more.
What Is Homeowners Insurance?
Homeowners insurance is exactly what it sounds like: An insurance policy for homeowners. While specifics will vary from policy to policy, homeowners insurance is designed to cover you when a “covered event” damages or destroys your home and certain assets contained within it. Homeowners insurance also typically provides a certain level of liability coverage in the event that an accident (like a slip and fall) happens in your home or on your property.
There are eight standard types of homeowners insurance (HO-1, HO-2, HO-3, HO-4, HO-5, HO-6, HO-7, and HO-8). Each of these different policy types applies to different situations and offers different kinds and levels of coverage. That being said, HO-3 and HO-5 are the most common forms of homeowners insurance and the varieties that you are most likely to encounter.
How Does Homeowners Insurance Work?
Generally speaking, homeowners insurance will work something like this:
First you must purchase a policy, which will define what structures are covered, what events qualify for coverage, and how much you are covered for. Depending on the company you purchase your policy from, you may need to arrange for a home inspection.
While you can try to find an insurance company and policy on your own, it can be difficult to shop around and know that you’re getting the best deal (that’s why Matic is here to help match you with the best possible policy).
Once you have purchased your policy you will then be responsible for paying monthly premiums, just as you might for life insurance or health insurance. In the event that your home or covered assets are damaged or destroyed during a covered event, you will submit a claim to the insurance company.
Before the insurance company will cover the expense, you’ll first need to meet your deductible, which is the amount you are expected to pay out-of-pocket. Depending on your policy, you may find that your deductible is different depending on the type of event you are claiming against, so it’s important that you understand exactly what you will be responsible for paying. Ideally, you should have at least enough money set aside in an emergency fund to cover this deductible. You can often lower your deductible by paying higher premiums. Importantly, the deductible may reset on an annual or per-event basis, so it’s also important to understand how this part of your policy works.
Is Homeowners Insurance Required?
The short answer is: It depends.
You are not required by law to have homeowners insurance, which means that if you truly own your home in full, you can decide to forego a policy. That being said, even in these situations you are highly encouraged to purchase insurance that can cover you in a worst case scenario. No matter how well we plan, it’s impossible to prepare for every possibility, and it’s nice to know that homeowners insurance is there for you when you need it.
If you don’t own your home in full, but instead have a mortgage, then you’ll find that your mortgage lender will require you to have homeowners insurance. This is because they have a financial interest in your home, so the insurance protects them as much as it protects you. Allowing your coverage to lapse or expire can have significant negative repercussions, including potentially defaulting on your mortgage.
What Does Homeowners Insurance Cover?
Exactly what your homeowners insurance covers will depend on the type of policy that you have. That being said, all standard homeowners insurance policies will include four basic types (or levels) of coverage:
1. Structural Coverage
When most people think about homeowners insurance, what they’re actually thinking about is the structural coverage that their policy offers. In short, this is the part of your policy that covers you if your home becomes damaged or destroyed by a covered event. Depending on your policy, this may or may not include other structures on your property besides your main dwelling, such as a gazebo or shed.
2. Personal Property Coverage
The personal property coverage portion of your policy is designed to help you replace covered items within your home that may have been destroyed or damaged during a covered event. This will also often cover theft. Items that are often covered include clothing, furniture, electronics, and jewelry, among others. Exactly how much you are covered for will be outlined in your policy.
3. Liability Coverage
Liability coverage protects you in the event that an accident occurs in your home or on your property, and is designed to cover medical and legal fees for the injured party. Some examples of what might trigger this coverage include:
- Your mail person slipping, falling, and injuring themselves on your walkway
- A tree branch falling off of a tree on your property and damaging your neighbor’s home
- A pet injuring a guest, for example by biting them
4. Additional Living Expenses
If you are unable to live in your home for a period of time due to damage caused by a covered event, then your policy will typically help you cover living expenses such as a hotel bill, meals, and more.
What Isn’t Covered By Homeowners Insurance?
Again, this will depend on your policy. That being said, most homeowners insurance will not cover damage or destruction caused by: Flooding, burst pipes (also known as sudden or accidental discharge”), water or sewage backup, earthquakes, natural disasters (such as a tornado or hurricane), acts of war, and other so-called “acts of God.” Most homeowners insurance policies also do not automatically cover sewer lines, downed electrical lines, and damage to “other structures” on your property.
While your policy may not automatically include coverage for these scenarios, it is typically possible to purchase additional coverage (often called riders) to add coverage for specific events.
How Much Homeowners Insurance Do You Need?
Unfortunately, it’s impossible to answer that question with a blanket statement that applies to everyone, because the simple truth is that it will depend on your unique situation.
Ultimately, you’ll need to have at least enough coverage to meet the requirements of your mortgage lender. But really, the right amount of coverage for you will be a policy that fits within your budget while simultaneously protecting your home at the highest level possible. Usually, this means having a policy that has been written to the replacement cost of your home.
Want to learn more about how to calculate how much homeowners insurance you need? This article dives deeper into that topic.
As you can see, there are a lot of considerations to keep in mind when purchasing a homeowners insurance policy, and it’s easy to feel overwhelmed with the process. At Matic, we’re here to help make the process as easy as possible. In just a few seconds, you can get your own personalized quote and begin saving on homeowners insurance.