Homeowner’s insurance helps to protect your most valuable investment—your home. But homeowner’s policies can vary in cost, depending on where you live and what you’re insuring. Following are homeowner’s insurance costs explained so that you can make decisions about your specific needs.
Why you need homeowner’s insurance
If you have a home mortgage, you are required to have homeowner’s insurance. Even if you don’t have a mortgage, it’s recommended that you have insurance to protect your home.
Simply put, homeowner’s insurance provides coverage:
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- In case your home or belongings are damaged
- In cases of fire, wind, snow and other covered perils
- In case you are held responsible for an accident or injury
How much coverage you will need depends upon your location, the size and scope of your home/dwelling, other structures on your property, and your personal belongings. You don’t want to shortchange the amount of coverage, or you may not have enough to rebuild your home or replace your possessions in the event of a claim.
Note that homeowner’s insurance is not the same as mortgage insurance. Mortgage insurance is required when you put less than 20% down when you buy your home. Mortgage insurance protects the lender. Home insurance protects your home.
Depending on where you live, you may face different types of risks which can affect your home. These include extreme heat, drought, fire, and severe storms. Your insurer will take those risks into account when pricing your policy.
There also are natural disasters such as flooding and earthquakes which are not covered by homeowner’s insurance. You can add these coverages with a separate policy or an endorsement added to your property policy.
Dwelling Coverage
Coverage A, dwelling coverage, covers the structure of your home. This includes the roof, walls, floorboards, cabinets and bath fixtures. Essentially, if you could tip your house upside down, it would cover everything that remains attached. Under dwelling coverage, your insurance provider will pay to rebuild your house if the structure is damaged by a covered peril. Coverage for the dwelling and other structures is categorized as “open perils,” meaning it’s covered unless it’s excluded. Building materials like hardwood floors, gourmet kitchens, granite counters, and tile roofs are all factored into the appropriate amount of insurance you would be offered under dwelling coverage.
Especially in periods of economic inflation and building supply or labor shortages, the true rebuild cost of your home may be substantially higher than the market value and even much higher than the cost of building a new house on an empty lot. If your insurance provider hasn’t recalculated the cost to rebuild your home recently, then you may be at risk of running out of coverage if you experience a total loss. That’s why it’s good to periodically check with your provider to make sure you are fully covered.
Other Structures
You may have a swimming pool, shed, detached garage, or fence. These are other structures that can be damaged and therefore need to be included in your insurance policy. Other structures coverage will cover damage to these structures that is not specifically excluded in the policy.
The coverage limit for other structures is generally set at 10% of your home’s coverage limit. That means if your home is insured for $200,000, the coverage limit for your detached garage would be $20,000. For an additional premium, you can add an endorsement for additional coverage.
Personal Property Coverage
Personal property coverage protects your possessions. If they are stolen, or damaged by fire/smoke or any of 16 named “perils,” your policy will pay for them subject to your deductible. There are dollar limits for theft of certain items, such as jewelry and firearms.
You may choose the replacement cost or the actual cash value (ACV) for reimbursement in personal property coverage. ACV is the amount the item is worth, minus depreciation for its age. It will cost a little more for a policy that provides replacement cost since that is higher than ACV.
Liability Coverage
Liability coverage includes two coverages: Coverage E – Personal Liability and Coverage F – Medical Payments to Others.
Personal Liability protects you if a claim is made or a suit brought against you for bodily injury or property damage caused by an occurrence to which coverage applies. An occurrence means an accident, which results in Bodily injury or Property damage. If you are found liable, the policy will pay up to its limit of liability for damages for which an insured is legally liable. This can include medical expenses, lost wages, pain and suffering and permanent scarring. The policy also provides a defense in court, if needed, for the policyholder. This is at the insurance company’s own expense.
You want to make sure you have enough coverage to protect your assets – a minimum amount is $100,000. Liability covers you at your place or anywhere in the world. For example, if your dog bites someone, you’re covered. The policy pays for the bite victim’s medical expenses and covers court fees if they sue you.
If you are not liable, but your guest was injured through his/her own fault, then Coverage F – Medical Payment to Others may cover your guest’s medical bills. Under Coverage F, the insurance company will pay the necessary medical expenses to a person injured on the insured location with the permission of an insured, or off the insured location if the injury is caused by the activities of an insured or caused by an animal owned by an insured.
Additional Living Expenses
If your home is damaged in a covered claim, it may not be livable. If that’s the case, you would need to stay somewhere else. You would be covered for any necessary increase in living expenses, such as lodging, food, and gas. Under Coverage D – Loss of Use, called “Additional Living Expense,” your policy will provide a flat percentage toward living costs, usually 30% of the Coverage A amount. Some states have time limits (e.g. 12 months) on when you can use that coverage. Plan to cover those additional expenses out-of-pocket.
Deductible
Generally, the higher your deductible, the lower the cost of your insurance premium. Since the deductible is the amount your insurance provider will subtract from an insurance payout, you’ll have to select a deductible that you’re comfortable paying out-of-pocket after a loss.
Other Things That Affect Cost
Finally, there are other items that can affect the cost of a policy. Your insurance claim history could be factored in. If you have a number of past claims, or the home you are trying to insure has a number of claims, your rate could be higher. The age of your home and condition of your roof may be taken into account.
This article is furnished by California Casualty, providing auto and home insurance to educators, law enforcement officers, firefighters, and nurses. Get a quote at 1.866.704.8614 or www.calcas.com.
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