What is homeowner’s insurance?

We find that many people purchase homeowner’s insurance because their mortgage lender told them they had to have it to close on their home loan. They rely on an agent they have never met to give them what they need. Then a giant policy arrives in the mail and they tuck it away until the next year when another policy arrives. In the meantime, they never really know what they have purchased for one of their biggest assets—their home.

The following is an attempt to summarize 10 of the top questions you might have about homeowner’s insurance but were afraid to ask. We can go into much more depth if you wish. But this is a beginning:

  1. What is homeowner’s insurance?

    Homeowners insurance is a package policy of property and liability insurance. It is designed primarily to cover your home and the things inside it—the things that can fall out if you tip your home upside down—in the event of some problems. It is also designed to protect you if you are sued for negligence and causing injury or property damage to another.

  2. What perils are covered by homeowner’s insurance?

    Homeowner’s insurance commonly covers these perils: fire, windstorm, hail, lightning, smoke, explosion, theft, vandalism, riot and vehicle collision. It commonly excludes — i.e. doesn’t cover– earthquakes, flood, power failure, war, nuclear explosion, neglect, ordinance of law (locally forced repairs) or intentional damage.

  3. How do I insure against risks that the homeowner’s policy doesn’t cover?

    If you live in an area that is prone to flood or earthquake, you can purchase a separate policy to cover these perils. In fact, a mortgagee will probably require you to purchase flood or earthquake insurance if you live in an area prone to them.

  4. Is homeowner’s insurance required by law?

    No, it is not. Unlike automobile insurance, you are not required to buy homeowner’s insurance. If you have a mortgage, the mortgagee will most likely require it. The bank doesn’t want to lose its investment.
    Homes are expensive and perils such as fire, windstorm, or flooding doen’t always discriminate based on the value of the home. Most homeowners are not in a position to self-insure if they have a catastrophic loss, like a fire, wind or a flood.

  5. Will homeowner’s insurance replace my home if it is destroyed by, for example, a wildfire?

    Depending on your coverage and the amount of insurance you purchased, the homeowner’s policy will go a long way toward making you whole. It will even pay for “loss of use”, i.e., for you to secure temporary housing while your home is being repaired. As we like to say: “No one regretted having too much insurance at the time of loss”.

  6. What are the different types of homeowner’s insurance?

    There are main types of homeowner’s policies: A replacement cost homeowners insurance policy, the better of the two, pays claims based on the cost of rebuilding or repairing your home with new like kind and quality at the time it is damaged or destroyed. An actual cash value homeowner’s insurance policy, which is less expensive, pays claims after accounting for any depreciation in your home’s value.

  7. How do I determine how much homeowner’s insurance I need?

    The answer to this question really depends on the size and condition of your home (replacement value) and the value of your contents. The standard homeowner’s policy covers personal belongings at 50% of the limit of your dwelling coverage. Some valuable items, like jewelry and fine arts, should be insured separately.

  8. How does liability coverage work?

    The liability section of the homeowner’s policy protects you if you are liable for someone’s injuries at or around your home. An example is if they slip and break a leg on a broken tile. The liability portion of the homeowner’s policy also covers property damage caused by you or a member of your household. The minimum limit is usually $100,000, but we recommend at least $300,000 to adequately protect your assets in the event of a loss.

  9. How can I lower the cost of homeowner’s insurance?

    You can opt for a higher deductible — that’s the amount of money you’ll have to pay out of pocket before your insurance kicks in. But you should also ask if you qualify for any discounts, such as alarm system credits or wind mitigation credits. Be sure that the values on your home and your contents are accurate. Remember that we are talking about replacement value and not market value (including the value of land).

  10. What is a Personal Umbrella Policy?

    Umbrella insurance policies are designed to give you extra liability coverage above and beyond that of your auto and homeowner’s policies. They are especially valuable for someone with substantial assets and/or someone with teenage drivers. Specific levels of underlying insurance are required. Uninsured Motorist Umbrella coverage should be included.

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Barbara Gracey Backer
Barbara Gracey Backer is the Vice-President of Gracey-Backer, Inc., an Insurance Agency in Delray Beach, Florida specializing in All Lines of Professional and Personal Insurance. She may be contacted at (561) 404-5746 or at barbara@gbifl.com.
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