If the home is where the heart is, then you should be in love with your homeowner’s insurance. Homeowner’s insurance is an essential part of keeping your home and your most important asset safe. It financially protects your home and your personal belongings in the event they are stolen or damaged.
While you’re not required to have homeowner’s insurance, it is a good idea to have it. If you’re buying a home, you will not be able to get a mortgage or loan to buy a house without one. Your lender will require you to have a homeowner’s policy until the loan is paid off.
Even if you own your home outright, you should still have homeowner’s insurance—especially if you don’t have the financial means to start over with nothing. Not having a homeowner’s insurance policy can result in life-altering monetary loss. Your home is probably your most valuable asset, so you should want to protect it.
Home insurance typically covers four areas: the exterior and interior of your home, your personal property, any other buildings or structures on your property (like sheds or garages), and provides liability if someone were to be injured on your property.
Your homeowner’s policy should cover damage from fire, storms, vandalism, and smoke. It will not cover any damage from earthquakes or floods, as those are separate from homeowner’s insurance.
In the event your home is damaged and you need a temporary residence, your homeowner’s insurance could cover it. If additional living expenses (ALE) are part of your policy, your insurance will cover the cost. This includes hotel, rent, and even meals.
Everyone’s needs are different, and that’s why a homeowner’s policy is customizable. Depending on your needs, you may need more coverage. Apart from the four areas that a homeowner’s policy can cover, there are three different levels of coverage to choose from. There’s actual cash value, replacement cost, and extended replacement cost.
Actual cash value covers the cost of your home plus the worth of your possessions. This level doesn’t take into consideration the cost of your personal property when you buy them. Items depreciate over time, so this level of insurance covers how much your items are worth.
Replacement cost covers the value of your home and your items without factoring in the depreciation. This means you will get the same amount you paid for these items. This plan allows you to repair your home up to its original value, and not just how much it’s currently worth.
Extended replacement cost covers however much it costs to repair your home. Most policies only cover up to a certain limit (the minimum is typically $100,000). Because of inflation and a market that’s constantly changing, the value of your home and belongings changes day to day. This plan covers more than you actually purchase, so it can cover up to 25% higher than the limit.
Many homeowners opt to get insurance plans that only cover the cost of their home, but most insurers recommend the extended replacement plan because it covers more than you need. It is more expensive than the other plans, but it provides a comfortable cushion for homeowners to rest easy, knowing that their house and their belongings will be fully covered no matter the state of the market and the price of construction.
If you’re looking to buy a new home or just need a new homeowner’s policy, talk to your local independent insurance agent to discuss the best plan for your situation.