It’s said that approximately 80 million people in America are homeowners. Of this population, 95% have insured their homes. Nonetheless, 60% of this population’s homes are underinsured. This threatens their investment if an uninsured risk occurs.
Further, when trying to secure a mortgage loan, mortgage companies require you to have home insurance coverage. Without proof of coverage, you’ll likely be denied your loan request. Also, home insurance comes in handy when handling expensive home repairs like roof replacement. To know which home insurance cover will help with roof repairs, learn more here.
This and more exemplifies the importance of homeowner’s insurance. However, before insuring your home, you’ll need to consider a number of factors like the pros and cons of homeownership insurance, coverage, and more. This post has everything you’ll need to achieve that. Keep reading to find out more.
Defining Homeowner’s Insurance
Homeowner’s insurance refers to a kind of insurance that covers your home from natural calamities or accidents.
For example, if a storm wind tears off your roof, you may need roof replacement service within 24 hours. Otherwise, without proper roofing, you risk insecurity, and extreme weather conditions, among other things. Therefore, if you don’t have the money for roof replacement, home insurance that covers roof repairs will come in handy.
Home insurance also extends to other assets in your home, like furniture, electronic appliances, jewelry, and so on. Do keep in mind that each homeowner’s insurance has different policies and costs. These factors are what determine the extent of coverage. When choosing your preferred homeowner’s insurance, you need to consider whether your budget aligns with its cost as well.
The four most common damages that homeowners insure against include:
- Damage or loss of home assets or personal belongings;
- Exterior damage;
- Interior damage; and
- Personal injury that occurs to others within your property.
When these incidents occur, the homeowner pays a predetermined out-of-pocket amount, depending on the homeowner’s insurance policy. This out-of-pocket cost is known as a deductible. For example, if your deductible is $2,000 and the damages on your property cost $10,000, your insurance company should pay the difference of $8,000. A high deductible reduces your monthly or yearly homeowner’s insurance premium.
Pros Of Homeowner’s Insurance
Homeowner’s insurance has numerous advantages, as listed below. Check them out.
1. It Covers A Significant Extent of Damages
As earlier mentioned, homeowner’s insurance covers a range of damages, including loss of home assets, external and internal damages, and so on. If these damages occurred independently or combined, the out-of-pocket costs would be hefty.
Nonetheless, with insurance coverage, the money you’d spend in the form of deductibles is much lower than the actual repair costs. As explained in the next point, these low costs make covering property less expensive.
2. It Reduces The Cost Of Repairs
Regardless of the homeowner’s insurance policy you choose, your deductible will always be lower than the repair costs at any given time. This dramatically reduces the money you spend repairing the damage to your property.
For instance, if assets in your home worth $20,000 were stolen, and your deductible is $4,000, your insurance company would cover the remaining fee. You’d have to pay the entire $20,000 to replace the items without a home insurance cover.
3. It Reduces The Stress That Comes With Maintaining A Home
Part of maintaining your home is constantly repairing things damaged during an accident or natural calamity. For example, imagine a lightning strike sets your house on fire and your belongings and the foundation of the house gets damaged. Without homeowner’s insurance, you’d have to pay for all these repairs out-of-pocket. This is both costly and stressful.
Fortunately, you’re less likely to be stressed if your home insurance plan covers these risks. This is because your insurance company will cover the bulk of the costs.
4. It Safeguards You From Lawsuits
Most homeowners’ insurance policies cover personal injuries that occur within your property. For example, if someone suffers a personal injury within your home as a result of your negligence, you’re obligated to foot their medical bill. Failing to do that may result in a lawsuit in an attempt to receive compensation for personal injuries suffered.
The wonderful news is that most homeowners’ insurance policies cover personal liability for injury to others. Therefore, insuring your home with the right homeowner’s insurance policy safeguards you from lawsuits.
Cons Of Homeowner’s Insurance
While having homeowner’s insurance offers you numerous benefits, it has its disadvantages. They include:
1. Despite Covering Multiple Damages, It Still Doesn’t Protect Against All Risks
Your homeowner’s insurance can’t protect against all risks. For example, a running tap flooding your house and causing damage does not qualify as an accident or a natural calamity. You’d be responsible for paying the repair costs in such a case.
In addition, some home insurance policies do not cover certain damages. Roof repairs aren’t covered by all home insurance as an example. For such scenarios, you’d have to pay out-of-pocket.
Thus, it’s advisable to explore different policies before settling on the one that fits your needs best, like roof repair. This will ensure that most of the incidents that potentially cause costly damage are insured against, thus minimizing costs on your end.
2. It’s Expensive
Homeowner’s insurance rates are quite high. On average, the annual home insurance costs are $1,784. The monthly insurance premiums aren’t low either.
Think of it this way. Home insurance covers damages and losses, including loss of assets in your home, internal and external damage, and personal injury to others within your property. As a result, when the damage occurs, you pay a small fee, and your insurance company covers the rest.
Nevertheless, your monthly premiums make it possible for the insurance company to finance your losses. This is what makes homeowner’s insurance quite expensive.
3. Some Terms And Conditions Have Hidden Costs That Don’t Favor Homeowners
Some insurance policies contain hidden costs in their terms and conditions that may only be noticeable if you’re keen. Failing to read the insurance policy thoroughly can leave you tied to a home insurance policy that doesn’t favor you.
Hidden costs may be exemplified by a policy that claims to cover risks against personal injury to others but states in the terms and conditions that it only does so halfway. In such a case, you may end up paying high out-of-pocket costs that you hadn’t anticipated, which is a loss on your side.
Typical Homeowner’s Insurance Coverage
The damages you insure your home against are categorized under different homeowner’s insurance coverages. These include:
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Medical Payments Coverage
This coverage protects against personal injury to others within your property. For instance, if someone slips on your slippery front step, your insurance company will step in and cover their medical expenses. Usually, the cap for this coverage is $100,000 but you’re allowed to increase it if you anticipate more risk.
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Dwelling Coverage
This coverage protects your home and any other structures attached to it. If either of them is damaged by a covered accident or calamity, the responsibility of repair falls upon your insurance company. Keep in mind that the coverage is limited depending on the policy you select. Therefore, if you want your insurance to cover more costs, you have to choose a policy with more coverage.
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Personal Property Coverage
This coverage safeguards against damage or loss of home assets or personal belongings such as furniture, home appliances, and clothes. Nevertheless, this coverage has limits, so you need to ensure the policy you select has a higher limit that covers all the items you consider valuable. To make this easier, you might want to take inventory of your belongings and home assets.
In addition, your personal property coverage may have a limit on specific items like electronic appliances or jewelry. In such a case, it’s advisable to talk to your agent about adding an insurance endorsement. An endorsement is an adjustment to your original home insurance policy that extends coverage to precious items.
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Personal Liability Coverage
Personal liability coverage protects you from paying out-of-pocket legal or settlement fees for yourself or a family member. For instance, if you or a loved one harms or damages their property, this coverage protects you from financing the legal expenses.
Plus, this coverage insures against any liability that may occur from your pet inflicting harm or injury upon others. Yet the coverage isn’t applicable if your pet is an aggressive breed. Similar to the medical payment coverage, this cover is capped at $100,000 yet you can increase your limit to extend coverage.
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Loss-Of-Use Coverage
Homeowner’s insurance protects against damages that may put you out of your home. The specific coverage that offers protection for this is the loss-of-use coverage.
For example, a natural calamity, like a fire caused by lightning, may damage your house beyond habitable conditions. In such an instance, your home may need extensive repairs or rebuilding, causing you to seek shelter elsewhere. When that happens, a loss-of-use coverage takes care of your additional living expenses, including accommodation costs and other bills.
Every homeowner’s insurance policy has different loss-of-use coverage limits. For those offering unlimited coverage, the cover duration is capped. Contrarily, policies with a limit for the amount paid out to cover extra living expenses are indefinite. This means the expenses are covered continuously until your house has been repaired or rebuilt.
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Other Structures Coverage
This coverage safeguards structures in your home that are detached from your houses, such as barns and garages. The policy limit for this cover is determined by the detached structures you choose to cover. Usually, your other structure coverage is approximately 10% of your dwelling coverage limit. For instance, if your dwelling coverage is capped at $20,000, your other structure coverage may have a limit of $2,000.
What Isn’t Covered By Homeowner’s Insurance
While homeowner’s insurance is known to cover accidents and natural calamities, not all disasters and accidents are covered by home insurance policies. The exempted natural disaster and accidents include:
- Damage caused by neglected maintenance;
- Earth movements such as landslides, mudslides, earthquakes, and sinkholes;
- Attacks by aggressive dog breeds;
- Floods;
- Mold ;
- Sewer backups; and the like.
Tips To Help You Minimize Risks And Cut Costs
Minimizing risk as a homeowner is essential because it reduces the cost of protecting your home by minimizing insurance premiums. Below are some tips you may use to achieve that.
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Invest In A Good Security System
A monitored alarm system keeps your home secure and helps you play an active role in protecting your home. You may connect it directly to your local police station. Consequently, providing proof of this monitoring to the insurance company would help you get a discount on your premiums. Similarly, a smoke alarm can save you about 10% of annual premiums.
Another way that a good security system cuts costs is that it keeps your belongings and your home safe from accidents and calamities. For example, smoke alarms may help you detect a fire before it starts. Consequently, you may not need any repairs for your home, which means no deductibles. The same applies to an alarm system, considering it can help you catch an intruder before they make away with your belongings.
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Take Advantage Of Discounts By Maintaining Multiple Insurance Contracts
Most insurance companies give their clients discounts of around 10% or more when they sign up for multiple insurance policies. As such, consider consulting with agents at your insurance company regarding the provisions of other insurance plans. These could be health, auto, and so on. If their quotes are within your budget and their services appeal to you, you can invest in another insurance policy. Consequently, your discounts will lower your premium, helping you cut costs.
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Settle Your Mortgage
Insurance companies tend to trust homeowners who own their residences fully compared to the ones still paying off mortgages. Consequently, they may charge them lower premiums or offer them discounts. This is a great way to cut costs.
Therefore, if you’re in a position to settle your mortgage, you should do exactly that. Your cautiousness with a home you fully own will help you minimize the risks within your control, thereby reducing costs.
Wrapping Up
Homeowner’s insurance protects your property from loss or damage while also safeguarding your liabilities. As such, choosing the home insurance coverage that fits your needs is important. Before making your decision, consider the pros and cons of homeowner’s insurance and its different coverage forms.
In addition, make sure you know the types of calamities covered and those that aren’t. It’d be in your best interest to learn a few tips to help you minimize risks and save costs too. This will help you spend less on your insurance premiums. Remember to consult an agent for clarification related to your homeowner’s insurance policy.
