You probably know that in exchange for paying a monthly or yearly premium, homeowners insurance protects your home against covered losses. But you may not be familiar with the intricacies of homeowners insurance because, let’s face it, most of us don’t spend our spare time talking insurance. And that’s okay – it’s what we’re here for.
The Basics
A standard HO3 policy can cover the costs of repairing damage from “perils” like fire, lightning, windstorms, hail, smoke, theft, and vandalism. But did you know homeowners insurance doesn’t just apply to the physical structure of your house? It can also cover your belongings – from your bicycle to your laptop – even when you’re not at home. Another fun fact: It can have your back in the case of accidents on your property which might lead to legal action.
A good rule: When you read your policy, pay close attention to the exclusions from coverage and to the conditions you must satisfy to get coverage.
Why Should I Get Homeowners Insurance?
To put it straight: the main reason is because you probably have to. When you take out a mortgage, a lender or a bank lend you a large amount of money to cover the price of a home, with the expectation that you, the homeowner, pay back this loan with interest. If your home was damaged and you didn’t have insurance (or the funds for the repairs), you might default on your loan, the property would down in value, and the lender would take a big loss on their investment. Yikes.
But beyond the required, a homeowners insurance policy is just common sense. The right coverage can protect your wallet if you run into a bit of bad luck, like if a tree falls on your roof, or if someone slips on your patio and breaks their ankle and ends up in the ER.
What’s Covered?
Your Home
At the heart of homeowners insurance is dwelling coverage, often referred to as Coverage A. If your physical home is damaged or destroyed, dwelling coverage could help cover the costs to repair or even rebuild it.
Naturally, there will also be some exclusions to what’s covered by your dwelling coverage, which you’ll see listed out in your policy. It’s common for things like damage caused from flooding, mold, and earthquakes to not be covered by your policy. (You’d want to secure separate insurance policies to cover floods and earthquakes.)
Other Structures
Referred to as ‘Other Structures’ coverage, or Coverage B, this part of your policy covers assets on your property that aren’t connected to your home or built into your property’s foundation.
This coverage can include your driveway, fence, toolshed, detached driveway, etc. Basically, if it’s not attached to your home, didn’t sprout from the ground, and is a part of your property – it’s probably covered under Coverage B.
It Covers the Stuff You Own
Personal property coverage (Coverage C) protects your belongings from certain named perils. Anything from your Peloton to your laptop or living room couch would fall under Coverage C. Keep in mind, however, that you won’t be able to file a claim if those things just stop working – if your MacBook dies, that’s between you and Apple. But if your MacBook is damaged in a fire, or is stolen, your Swyfft homeowners insurance comes into play.
Coverage C also travels with you when you leave the house. If you lock your bike in front of a local coffee shop and someone blasts through the chain (rude), you’d mostly likely be able to file a claim for the theft.
It Covers Situations in Which Your Place Becomes Uninhabitable
If unexpected damages force you out of your place for a period of time, your Loss of Use coverage (Coverage D) comes into effect to cover the additional costs connected to temporarily living outside of your home.
Coverage D can help foot additional expenses related to hotel lodging, takeout, laundry, and parking – above and beyond what you’d normally pay if you were in your home.
It’s important to note that certain situations won’t make you eligible for Loss of Use on their own. For instance, if you lose power, or your pipes freeze – without any additional damage to your property – this would not be sufficient to activate Loss of Use coverage.
It Covers You (and others on your policy) When You’re in a Legal Bind
Personal Liability coverage (Coverage E) defends you in scenarios where you might be legally vulnerable. It can shields you from potential legal and financial repercussions if someone is injured on your property or if you unintentionally cause damage to someone else’s property.
What Isn’t Covered by Homeowners Insurance?
Earthquakes and flooding won’t be covered in a standard home insurance policy. If you still want coverage for these types of disasters, you can take out additional coverage. Additionally, chances are your policy won’t cover damages or personal liability related to things like mold, sewer backups, infestations (think bed bugs), wind damage in certain states, wear and tear, damages related to construction work, certain breeds of dangerous or aggressive dogs, stolen cash if over a certain amount, nuclear hazards, etc. Your basic homeowners policy protects your electronics and appliances against certain “perils”, but not against every type of damage.
If your washing machine has an electrical failure, your base policy wouldn’t help. If you want to add on extra protections, you can purchase Equipment Breakdown Coverage (EBC). This is an endorsement to complement and enhance your homeowners insurance and provide coverage for many other types of damage.
Factors Affecting the Price of Homeowners Insurance
Location: Your geographical location can impact your insurance rates, with considerations for local weather patterns, and proximity to potential hazards like flood zones or wildfire-prone areas. Also, if your home is close to a Class 1 fire department, your premiums might be lower than if you live half an hour from the nearest fire station. At Swyfft, we use LIDAR technology and thousands of data points to develop a policy specific to you and your home. That way, you only pay for the coverage you need.
Home Characteristics: Factors such as the age, size, construction materials, and overall condition of your home can affect your insurance premiums. That pre-war crown molding may be your favorite thing about your home, but are the pipes as old as the ceiling? That could be bad news come winter. Basically, the older your house is, the more prone it is to damage.
Coverage Limits and Deductibles: Choosing higher coverage limits or lower deductibles typically results in higher premiums, while opting for lower coverage limits or higher deductibles can help reduce your insurance costs. If you choose a high deductible and lower premium, and that tree doesn’t fall on your house – well you’ve come out ahead. But predicting the future is pretty tough. There’s no right or wrong answer. At the end of the day, choose what makes sense for you. When in doubt, speak to your insurance agent for extra guidance.
Personal Factors: Your insurance score, claims history, and the presence of safety features like smoke detectors and security systems can also influence your insurance rates.
Unlike car insurance, which is required by law if you drive, homeowners insurance is not required simply by virtue of the fact that you’re a homeowner. However, most mortgage lenders will require at least some basic form of homeowners insurance. And unless you bought your house with cash, you probably have a mortgage. Your mortgage lender wants to make sure that if the worst happens to your home, you’ll have the coverage and funds to take care of it. If you don’t you’d both lose your valuable asset.