Home owners insurance. If you have a home then you absolutely need a homeowner’s insurance. These two go hand in hand. It is not a luxury, but a necessity. One of the first questions that we are always asked when giving an estimate is: ‘Will my homeowner’s insurance cover foundation damage?’ and the question is pretty much a resounding ‘No’.
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I jest. And while in a way, the subject of foundation repair in regards to homeowner’s insurance can most definitely be surmised by a strict ‘Not covered’, here at iFix we like to help homeowners in any way we possibly can, even if it is not directly linked to us. Therefore we decided to write this post as the subject of home insurance is vast and sometimes complicated; trying to break it down so you can be better inform and make the best decisions regarding your home insurance.
Much like any other insurances, home insurance is designed to cover you when a ‘covered event’ takes place bringing about damage or destruction to your home and certain assets contained within it.
Is it absolutely necessary to have a home insurance? Like, by law? Well, at the start of the post we talked about it being a necessary and not a luxury, however it is not a requirement by law. If you own your house in full you can forego a policy, but even then it is highly recommended that you purchase one in the case of a worst case scenario eventually taking place. But what happens if you don't own your home in full? Well, mortgage institutions will all require proof of a home insurance, given that they have financial interest in your home so it is to protect them as much as to protect yourself.
So you have decided to purchase a policy. The policy will define what structures, events and amounts are to be covered. A home inspection might be required for this. And while you can certainly find and insurance company and policy on your own it is always recommended that you contact different companies and compare coverages. A good tip is to find a company that has great costumer service reviews, after all you will (hopefully not) be dealing with them when disaster strikes. Also, if you are already working with an insurer make sure to ask as sometimes current clients get better deals.
Once you have a policy you will pay monthly premiums not unlike life and health insurances. And in case that home or the covered assets are damaged or destroyed you will have to file a claim to the company.
But there is one thing that comes before that, the dreaded word: ‘deductible’. Before the company covers the expense you will need to meet the deductible which is the amount that you’ll have to pay out of pocket. Again, just like health insurances.
One thing that you will learn is that deductibles change based on the type of events you are claiming against. It is very important to understand what is your responsibility to cover, so you definitely should have a certain amount of money set aside for emergencies. Also, if you want to lower your deductible you can do so by paying higher premiums. Keep in mind that deductibles may be reset annually or on a per-event basis.
So what do home insurance actually cover? For starters policies are infinitely customizable and It will depend on the type of policy, but generally the standard coverage accounts for destruction/damage to the interior and the exterior, loss or theft of possessions and personal liability for harm to others.
Structural Damage: This is the first thing that comes to mind when talking about home insurance. I mean, you are taking about damage to the house itself, so it is pretty much obvious. This is the part that the policy covers in case the house itself, or structure, gets damaged or destroyed by a covered event. One common question is whether other structures, independent to the main house, like sheds or garages are covered. And the answer, again, is that it will depend on the policy itself. The way this will work is that in the case of a covered event the insurer will compensate you so your house can be either repaired or completely rebuilt.
Personal Property. This part of the policy helps replace covered items within your home that might have been damaged or destroyed during the covered event. Sometimes it will also cover theft. Clothing, furniture, electronics and jewelry among others. Your policy will outline how much you coverage you are entitled to. Now, the may be a limit on the amount to be reimbursed. Most companies will provide coverage for 50-70% of the amount of insurance on the estructure.
Now in case you have a lot of high-priced possessions like fine art, antiques, high-end collectibles, fine jewelry or designer clothes you definitely might consider to pay an extra and have them itemized or even buying a separate policy just for this.
Liability Coverage. This will protect you case of accidents taking place on your property. It covers medical and legal fees for the injured party. So, pretty much it protects you from lawsuits filed against you.
Living Expenses. In case a covered event occurs and as a consequence you are forced to live out of your home for a while this will help you cover living expenses like hotel stays, bills and more. This will go into effect during the time while you wait for your home to become habitable again, however there are strict daily and total limits so don’t go all James Bond ordering Dom Perignon ’52 and caviar just yet.
The next thing that we have to talk about is coverage levels. There are three levels of coverage:
Actual Cash Value. This covers the cost of the house along the value of the belongings, after deducting depreciation. What this means is that they will pay the amounts the items are currently worth and not the original amount paid for them.
Replacement Cost. Covering the actual cash value of home + possessions without deducting depreciation, therefore allowing you to rebuild or repair your home up to its original value.
Guaranteed or Extended Replacement Cost. This you might call the most comprehensive inflation-proofed policy, as it will pay whatever the costs of repairing/rebuilding your home are. It might even be more than the policy limit, with a ceiling that goes around 20% to 25% above the limit. Since you would be rebuilding your home at current prices this is the most desirable coverage as it stands to reason that prices will have risen since you purchased or built your home.
Besides the levels of coverage there are also types of coverage. These are Named Peril Coverage and Open Peril Coverage. What this entails is that a ‘Named Peril’ basis only pays if the damage has been caused by a specifically listed (or named) cause of loss or peril. It could be something like fire or wind or something else that is specifically named. An ‘Open Peril’ on the other hand pas when the damage was not caused by a specifically excluded event.
But what is not covered or excluded from insurance policies? Insurance policies generally include coverage for a wide range of perils and events that could potentially cause damage to your property or belongings, while also having several exclusions not covered under standard policies among them several natural disasters. Floods and earthquakes are the most common exclusions. Sinkholes are something to think about as well. Sudden sinkhole damage may sometimes have limited coverage. However gradual sinkhole damage will most likely be excluded.
Regarding repairs and maintenance, these costs are not covered. Repairs and replacements brought about by normal wear and tear are not covered either. Damage by termites, rodents mold and other pests are also excluded. Man-made damage brought upon by acts of war, terrorism or nuclear accidents or radiation are also out of the question.
Now that we think about it, ‘What is actually covered?’ might be a better question. Commonly covered perils include windstorms and hail, fire and lightning, explosions, smoke, volcanic eruptions, falling objects, theft, vandalism, damage from aircraft or vehicles, accidental discharge of water, weight of ice, sleet and snow, freezing of appliances or HVAC, artificially generated electrical currents and accidental tearing apart or cracking and the likes.
One thing to have in mind is that for certain exclusions, for instance floods, there is always the possibility of specialized or specific insurance to protect your home from such scenarios. These additional coverages are often called riders, so if you deem it necessary then make sure to ask (and compare) with your insurance company.
So in short, how much home insurance do you actually need? Again, the answer is as customizable as the policies themselves, as the truth is that it will depend to your specific situation/condition. It is recommended to have at least enough coverage to meet the replacement cost of your home, or at least balancing a policy that fits your budget while protecting your home at the highest level possible.
We hope this helps making homeowners insurance policies a little bit easier to understand, and you’ll be better prepared to ask the right questions when purchasing one. Join us in our next post where we will be talking about how the home insurances rates are determined as well as sharing some cost cutting and comparing insurance companies tips for you.