In all the hustle and bustle of purchasing your next home you may forget that you need to protect your biggest financial asset.  You can do this with homeowners insurance that is designed to cover a variety of things: the home itself, your personal property in the home, expenses stemming from accidents that happen within your home, and even liability for your pets.  

Is Home Insurance Required?

Between utilities, repairs, HOA fees, and property taxes, some homeowners try to skimp on homeowners insurance or neglect it all together.  However this is a mistake since homeowners insurance is available to protect you and your assets.  If you purchased your home outright or with cash you will not be required to have insurance. Though, again you should still have insurance to protect yourself and your family.  If you purchased your home with a mortgage you will be required to have home insurance, since the lender is technically still the owner of your home until the mortgage is fully paid. If you cancel your home insurance or the policy is canceled due to non-payment or other reasons you will be in legal violation of the terms of your loan.  

What Does Home Insurance Cover?

Every home insurance policy is different and can be set by you and the insurance agency based on your coverage needs and financial comfort.  While small items may be different in each policy there are a few basics that are always covered on a home insurance policy.  

The Dwelling

The “dwelling” is just another way to say the building itself.  In the insurance world this means the main home and any detached buildings.  These can include a garage, shed, or pole barn.  

Possessions

Possessions include items that are inside the home as well as items you carry with you when you leave your home. These items are covered if they are lost or stolen.  If your possessions are damaged, lost, or stolen you will need to file a possession claim.  In general, policy holders can expect to receive between 50% and 70% of your dwelling coverage.  

Liability

If you are hosting a party and an individual falls and breaks their leg, you could be held responsible for the fall.  However, if you have home insurance the policy will cover medical and legal expenses that stem from the incident.  In general, policies cover between $100,000 and $500,000 for legal expenses.  It will also cover between $1,000 and $5,000 for medical payments.  

What Kind of Insurance Coverage Do You Need?

Most insurance policies cover damage or loss due to “named perils.”  These are bad things, listed out in your policy, that could happen to your property. Most insurance policies cover 16 specific named perils and damage or loss caused by those perils.  The 16 named perils include:

Fire or lightning

Windstorm or hail

Explosion

Riots

Aircraft

Vehicles

Smoke

Vandalism

Theft

Falling objects

Weight of ice, snow, or sleet

Accidental discharge or overflow of water or stream

Sudden and accidental tearing, cracking, burning, or bulging

Freezing

Sudden and accidental damage due to short circuiting

Volcanic eruption

What Isn’t Covered?

Flooding, including drain and sewer backup

Earthquakes, landslides, and sinkholes

Infestation of birds, vermin, fungus, and mold

Wear and tear or neglect

Nuclear hazard

Government action, including war

Power failure

If you live in an area where there are constant natural disasters such as floods, hurricanes, earthquakes, tornadoes, volcanoes, and sinkholes you will need to add catastrophe insurance to your policy.  These additions to your policy are called insurance riders and can be tailored based on your area and home location.  

Can You Change Your Insurance Policy?

Absolutely.  Insurance coverage can always be changed based on new situations that affect the coverage you need.  For instance, if you are renovating your home or adding livable square footage you should adjust your insurance policy to ensure the per-square-foot pricing to replace or repair your home is accurate.  In addition, if you get a pet, a pool, or a trampoline you need to increase your insurance policy coverage for these items as they pose a higher likelihood of injury on your property.  Finally, if the cost of home is rising very quickly in your area, as it has done over the past several years you may need to revisit your policy.  The cost to replace your house could be rising higher than the expected or projected adjustments.  

In the end, if you own your home outright, there is nothing stopping you from foregoing home insurance.  But just because you can doesn’t mean you should.  Natural disasters can happen anywhere and without warning.  They can leave you with serious damage to your home.  Without home insurance, you will be forced to pay the full cost to repair or rebuild your home.  In addition, home break-ins are always a possibility no matter where you live, which means your stolen items will not be financially redeemed.  Finally, while your home may be a sanctuary to you, it is not to neighbors and those living nearby.  If a neighbor gets hurt on your property or if an angry neighbor decides to sue, you will be held completely responsible for legal and medical costs if you do not have home insurance. If you are in the process of purchasing a home you can speak to your lender or trusted real estate agent for more guidance on the type of home insurance you need.  

David Jones