25 Questions to Ask When Buying Home Insurance

Fran Majidi
September 25, 2019

Most people don’t know what they are covered for when they buy a homeowners insurance policy. Especially for new homeowners, it’s easy to get confused about what’s covered and what is not in a standard policy. Some homeowners didn’t even purchase their own policies so they are paying too much for an insurance product that doesn’t necessarily cover all the bases. We have created a list of Frequently Asked Questions about homeowners insurance to help you figure out what you need before you comparison shop home insurance for multiple free insurance quotes here.

1. What is homeowners insurance?

Homeowners insurance was created to help you rebuild your home after a major catastrophe. In the event of a covered peril, like a fire or windstorm, your insurance will pay out what it would cost to rebuild your home, not the value of your home before it was damaged. It’s important to remember this fact and to keep receipts and documents relevant to additions to the main dwelling. There are also different types of home insurance; some that pay out actual cash value and those that pay a replacement cost (see more on this in the question below). There’s always a deductible you must pay with homeowners insurance before it begins to pay towards repairs. The higher your deductible, the less you pay each month. Filing many claims is highly discouraged and can cause a carrier to cancel your policy. Home insurance is not designed to pay for minor repairs and fixes in the home.

2. What are covered perils in a homeowners insurance policy?

Homeowners insurance covers many perils including the following: spoiled food (if your fridge breaks down); counterfeit bills; lock change; burglary; accidents caused by your children, if they are under 13 years old; damages resulting from lightning; theft; volcano eruptions; a tree on your property that falls and damages neighbor’s car, home or property; liabilities, for instance if someone gets hurt from a trip-and-fall accident in your home; if your dog bites someone; stolen and/or lost bike or luggage; water damage from a leaking roof or burst pipes (floods, however, are not covered); vandalism and riots are covered if your home is damaged; explosions as well as fire and smoke are covered; windstorms, hail and both automobiles and aircraft crashing into your home are covered

3. What types of homeowners insurance policies are there?

When you buy homeowners insurance you have the option of buying an actual cash value vs replacement cost policy. Replacement cost (RCV) is how much it would cost to replace your damaged or destroyed home with the same or similar home based on market value. Some but not all policies also cover the replacement cost of contents that were also damaged or destroyed. An actual cash value homeowners insurance policy works differently. The cash value is based on the market value or the initial cost of the home and contents of the home minus depreciation.

4. Do I need homeowners insurance?

If you have a mortgage on your home, you’re most likely required to have a homeowners insurance policy. You are not required by law to have a home policy, however. Even if you are not required to have a home insurance policy, it’s always a good idea to have one. If a catastrophic storm or fire destroys your home, you’ll be hardpressed to get any sort of substantial help from the city, state or federal government. Even when FEMA steps in to help, their help is very limited and will not cover the cost of rebuilding your home.

5. Is my home insurance tied to my mortgage?

No, your home insurance has nothing to do with your mortgage even though you may be paying both in one lump sum. This often happens when the lender sets you up with homeowners insurance to make sure that his/her risk is mitigated. Remember that until the house is paid off it technically belongs to your lender. This is why it’s important to shop and compare home insurance rates because it’s likely that you’re overpaying. Buy home insurance after getting free home insurance quotes.

6. How much will it cost to rebuild my house?

When you consider the fact that demolition of a 1,000 sq ft area can cost up to $15,000 and to rebuild the home much more, you should look at total costs involved when trying to decide on how much home insurance coverage to buy. That same 1,000 sq ft house may cost up to $200,000 to demolish and rebuild. Whatever you do, make sure you have a very accurate replacement cost or cash value tied to the dwelling coverage portion of your home insurance coverage. If you are underinsured, you will struggle to rebuild your house. A good first step to getting this figure right is by hiring an appraiser.

7. How much is the personal property in my home worth in the event of a total loss?

A typical home insurance policy insures personal property about 70% of the dwelling value. Most carriers set a limit between $15,000 and $40,000 for personal property coverage. It’s important to remember that if you have a roommate, this person’s personal property will not be covered. However, the children and spouse of the insured would be covered and so would your guest’s belongings. Another great thing about personal property insurance on your homeowners policy will also cover your belongings when you are not home. For example, if someone steals your bike or your laptop out of your car. Keep in mind that in order to get paid out in these instances, you still have to pay your homeowners insurance deductible first.

8. How much liability protection do I need?

Liability protection on your homeowners insurance covers you against lawsuits for property damage and bodily injury as well as damage or injuries caused by your pets. It will pay for legal fees and court awards, up to limits on the policy. This protection is not limited to the home. You are covered just about anywhere for property damage and bodily injury. If you have significant assets you need to protect in case of lawsuits, buy an umbrella policy to extend coverage limits on your liability protection.

9. How much additional living expense coverage do I need?

What if an unanticipated storm hit your home and it became uninhabitable. Would you be left having to pay for hotel stays and the like? No, home insurance should cover at least a portion of the bills. Additional Living Expenses (ALE) coverage is a standard protection in most homeowners insurance policies. ALE covers hotel stays, meals and other common living expenses. Generally speaking, ALE is about 20% of the dwelling coverage. If your dwelling coverage is $200,000, your ALE coverage would be $40,000. Often, you only have a window of time to make use of this coverage, usually about 1 to 2 years after the loss, depending on your insurance company.

10. Should I buy a separate flood policy?

Yes, you should have a separate flood policy because floods are not covered in a standard homeowners insurance policy. In some areas where flooding is common, flood insurance through the National Flood Insurance Program (NFIP) may be required, but even when it’s not a requirement, this is an important coverage for many people. Water damage will only be covered under a standard home insurance policy if it’s due to burst pipes as a result of an earthquake and other specific situations.

11. Should I buy a separate earthquake insurance policy?

Like flood insurance, earthquake insurance is not included in a standard homeowners insurance policy. Most insurance companies do provide it as a supplement to your home insurance. In California, where earthquakes are very common, you can buy earthquake insurance from California Earthquake Authority. The only damage from an earthquake that you will be covered for would be fire and water damage resulting from gas and water pipes bursting.

12. Do I qualify for any discounts?

Always assess your home to see what you have in place to keep it more secure. The following may earn you a discount: smoke detectors, burglar alarms or any type of home security service, surveillance cameras, dead-bolt locks, new plumbing and/or electrical system(s) and more. Some insurance companies offer discounts to homeowners who are 55 years old (or older) and are retired. You’ll also score a discount by bundling your home insurance with your auto insurance, even with renters or commercial insurance. If you’ve been claims-free you can earn a discount and also if you invest in an impact-resistant roof. If you live in a gated community, your homeowners insurance company will consider that you’re protected against vandalism and burglary. Other discounts include the following: non-smoker discount, having an HOA and paying your annual home insurance policy upfront and in full.

13. What is the difference between homeowners insurance and homeowners warranty?

A home warranty is very different from a homeowners insurance policy. A home warranty is a service contract that covers you for repairs or replacement of appliances and systems in the home. Some people even buy additional warranties for pools and spas. Home insurance does not take care of appliance break-downs. It’s designed to cover more catastrophic losses, usually from storms, accidents, burglary/theft and fire. Granted, your appliances will be covered if your home burns down, but your limits on personal property protection may be too low to fully recoup the full loss with home insurance. If your appliances break down due to age or wear-and-tear, a home warranty will not cover repairs or replacement. Some home warranty and home insurance policies overlap in terms of coverage. For instance, plumbing repairs are covered by both. You’d save money by using your home warranty over your home insurance policy because you’d need to pay your home insurance deductible before you’re covered.

14. What is dwelling coverage?

In your homeowners insurance policy, dwelling coverage refers to the main structure, which is your home. This is the most important part of your home insurance policy. The amount of land you own does not figure into the dwelling coverage. In some instances and with some policies, your garage and shed (or other existing structures like fences, decks, etc) are also covered. It’s a good idea to speak with your agent before making assumptions about what is and what is not protected under dwelling coverage. These are the most common perils covered by dwelling coverage: burst pipes; damage caused by the excessive weight of snow, ice or sleet; fire; smoke; theft; vandalism; motor vehicle collision; aircraft collision; volcano eruption; explosions; lightning; hail; windstorms and falling objects. Perils that are not covered include sinkholes, sewage backups and dry rot. Pretty much any loss that is caused by negligence will not be covered by the dwelling coverage portion of your home insurance.

15. How much homeowners insurance do I need?

The majority of American homeowners is uninsured by about 20% and they only find out about it when it’s too late. Most homeowners insurance policies have a minimum of $100,000 in liability coverage but that may not be nearly enough to cover the cost of rebuilding your home and replacing personal property that may have been damaged, destroyed or stolen. There’s also the risk that someone gets hurt on your property, in your house, even in your backyard or pool. A lawsuit could turn out to be expensive, but home insurance covers that cost if charges are filed against you. Also, what if a terrible fire or storm makes your home uninhabitable? You’ll need to pay for lodgings and meals out of pocket if you don’t carry enough home insurance. Most Americans are uninsured by about 20% and they only find out about it when it’s too late.

The way to calculate how much home insurance you need to buy calculate what it would cost to make an exact replica of your house and consider how much it would cost to replace your personal belongings. When you’re finished, speak with a trusted agent about how high you need to set limits to be fully protected.

16. How much does homeowners insurance cost?

The average annual insurance cost is about $1,200. Homeowners insurance costs vary widely based on the value of the home, the age of your home, your credit history and the location of your home. Also, the amount of coverage you elect to have will affect the price and so will the deductible amount that you choose. The average home policy cost spanning all 50 states ranges from $700 to $2,000. Comparison shopping home insurance rates is a wise thing to do so you’re not overpaying.

17. Does homeowners insurance cover personal belongings outside of the home?

Yes, if you travel with the contents of your home, like your computer or clothing and they are stolen or lost, you are covered. Also, if you take your clothing to the cleaners and they lose them, you are covered. If you have a bicycle that gets stolen, home insurance would cover that too. Often, people have items stolen out of their cars and they wrongly assume that comprehensive insurance will cover it. No, comprehensive insurance would cover any damage done to the car during the breakin but only homeowners (or renters) insurance will cover the stolen belongings.

18. How can I lower the cost of homeowners insurance?

The smartest way to lower the cost of your homeowners insurance is to shop home insurance rates with SmartFinancial. This way, you will be offered several competitive quotes to choose from, based on your needs and budget. Also, if you raise your deductible, it will lower your premiums. Take advantage of all the ways you can apply discounts: bundle your home and auto policies; make your home more storm and disaster proof; get home security services or devices; don’t file many claims; maintain your credit rating; pay your bills in a timely fashion and ask for a loyalty discount.

19. What discounts are there for homeowners insurance?

Each insurance company offers their own discounts but these are some common homeowners insurance discounts: gated community discount, mature homeowner discount, married or widowed discount, loyalty discount, bundling discount, security system discount, new home discount, non-smoker discount, HOA discount, pay-in-full discount and multi-policy discount.

20. Do I need an umbrella policy with my homeowners insurance?

If you have a lot of assets to protect, having an umbrella policy will extend your coverage’s limits.

21. Is roof damage covered by home insurance?

Yes, roof damage is covered by home insurance but improper maintenance may prevent you from getting a claim paid out. Roofs are a tricky subject for insurance companies because there is so much fraud surrounding replacing aged roofs. Homes older than 20 years old have to be inspected before an insurer will cover them; they often fail inspection. For more on homeowners insurance and roof damage and replacement coverage, visit here.

22. Is my jewelry covered by homeowners insurance?

Homeowners insurance will not cover the damage to jewelry. However, it does cover theft of jewelry, if you have a valid police report. The coverage on your homeowners insurance is usually only $1,000. If you know that the value of your jewelry exceeds this, you can buy a rider and add it to the home insurance policy. Not all riders are the same. Some also have very limited cover while others will cover damages, like a missing gemstone in a ring.

23. What are endorsements on a home insurance policy?

An endorsement on a home insurance policy indicates a change to a stand, usually in adding coverage or increasing coverage limits. On the flip side, an insurer can add an endorsement to restrict coverage. For instance, a personal injury endorsement to a homeowner’s insurance policy would extend.

24. Is mold covered by a homeowners insurance policy?

Your homeowners policy will cover mold in some cases but not others. If the mold resulted from a flood, flood insurance would take care of it, not homeowners insurance, which does not cover floods or the aftermath of one. Home insurance doesn’t cover mold which was caused by preventable water leaks or high humidity either. The only way mold will be covered by homeowners insurance is if it was from a covered peril like water damage from burst pipes.

25. Will my home insurance rate increase if I have a claim?

Yes, just a with car insurance, your rate will likely increase if you file a claim. If you file several claims in a short period of time, not only will your rate skyrocket, but your insurance company may drop you. If that happens, it becomes a real hassle trying to find another insurer who will write a home insurance policy for you. It’s best to choose your battles and only file home insurance claims on damages and repairs you can’t afford to pay for on your own. When you consider the fact that you have to pay the deductible in order to be covered, often times, there is absolutely no savings in having home insurance take care of the problem.

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