A home is the most expensive asset most people will own, so it is critical to protect your financial investment from unexpected damaging events. We’ve ranked and reviewed various companies based on annual premiums, customer satisfaction, financial strength, and overall quality.
How does homeowners insurance work?
Homeowners insurance covers homes in the event of a break-in, as well as damage from fires, hurricanes, and other destructive events, which will allow you to repair damage or replace your property destroyed by these events. Additionally, homeowners insurance also often covers medical bills in the event someone is injured on your property, and even coverage for hotel bills if you are displaced as a result of damage to your home.
Today, many homeowners are required to hold homeowners insurance by their mortgage lenders. Most require proof of insurance before completing the closing process. But even for homeowners who have paid off their mortgage, though not required, homeowners insurance can help you protect the property you worked so hard to pay off. It’s a worthwhile investment for any homeowner.
Homeowners insurance policies differ in how they offer coverage, with three types of policies:
- Actual cash value: This covers the cost of your home plus the value of your personal property, minus depreciation.
- Replacement value: This type of policy covers the actual cash value of both your home and personal property, without the deduction of depreciation.
- Guaranteed replacement value: This policy covers all costs related to repairing or rebuilding your home, regardless of whether it is over your policy limit with a specific ceiling outlined by the policy.
Often, it is recommended homeowners opt for a policy that will cover beyond the actual value of their home. This is due to the fact that over time, housing costs rise, and the amount of coverage you purchased at the time of purchasing your home may not be enough to cover current-day costs when an accident occurs.
What does homeowners insurance cover?
Most homeowners insurance policies cover a range of risks or perils an individual may experience during their time as a homeowner.
Generally, homeowners insurance policies cover the following events:
- Fires: If your home experiences damage from a fire or smoke, your policy will likely cover the repair costs.
- Theft: If someone breaks into your home and damages or steals any of your personal property, you will be covered by your policy.
- Fallen trees: Trees and other objects that fall and damage your home as a result of a windstorm are typically covered by homeowners insurance.
- Water damage: Damage from a burst pipe, or bad plumbing and other broken heating or cooling appliances are usually covered by homeowners insurance policies.
Though many homeowners insurance policies cover some damages related to inclement weather, most do not cover hurricane or wildfire damage. Some providers may offer additional coverage options or riders to add on to existing homeowners insurance plans.
Additionally, homeowners insurance does not cover damage from flooding. To receive this kind of insurance coverage, you will need to take advantage of a different type of insurance altogether (flood insurance).
How are homeowners insurance costs determined?
Here are some of the factors that contribute to homeowners insurance costs:
- Location: Depending on where your home is located, you may be expected to pay more or less for your insurance coverage. States with more expensive homes on average will require a higher insurance cost.
- Type of policy: An actual cash policy will, on average, cost less than a guaranteed replacement value policy. This is because these types of policies generally cover less overall, and will disperse less coverage money for filed claims.
- Insurance history: If you have filed a claim within the last few years, you can expect to have a higher premium overall due to your risk.
- Credit score: Your credit score can play into the amount you are expected to pay on a monthly basis for insurance coverage. Those with higher credit scores tend to pay less on average for homeowners insurance.
Additionally, if you have certain safety and security systems installed on your property, you may be eligible for a lower monthly premium. Burglar alarms, smoke detectors, and other systems that help to alert you during disaster situations can reduce your rate.
How to choose the best homeowners insurance?
Plenty of insurance providers offer homeowners insurance plans to choose from. To pick out the best individual plan, think about the following variables unique to you:
- Consider the value of your home and property: If you have a more expensive home or personal property, such as electronics or designer clothing, you will want to look into a larger amount of coverage in the event something happens.
- Your neighborhood and area: Certain areas of the country are more susceptible to particular weather issues, as well as neighborhood problems like more frequent theft. If you are noticing a certain kind of issue is more common in your area than others, you will want to ensure your homeowners insurance will cover you if you are affected.
- Compare and contrast plans: Some providers may offer a great deal for a policy, but do not cover everything you need. Compare and contrast available plans within your budget to determine which will cover you for the things you need while still being affordable.