House Insurance: A Necessary Evil?

While it is not a legal requirement to have home insurance, it is often mandatory to have it in order to secure a mortgage. Home insurance is also one of the best ways to protect what is likely your largest investment. It provides financial protection from unexpected losses due to physical perils like fire and wind damage, as well as potential liability concerns for things like dog bites or slip-and-falls.

Is home insurance legally required?

Home insurance is not a legal requirement, but it is highly recommended. If you have a mortgage, your lender will require you to have home insurance to protect their financial interest in the property. This is because, in the event of damage to the property, the insurance will safeguard them (as well as you) against financial loss.

If you live in an area that is likely to flood, your bank or mortgage company will also require you to purchase flood insurance. Some financial institutions may also require earthquake coverage if you live in an area vulnerable to seismic activity.

Even if you don't have a mortgage, home insurance is still a good idea. Your home is likely your largest asset, and a standard homeowner's policy insures the structure and your belongings in the event of a disaster, and offers liability protection in the event of an injury or property damage lawsuit.

What does home insurance cover?

Home insurance is not a legal requirement, but it is highly recommended to protect your home and belongings. It is particularly important if you have a mortgage, as lenders will usually require you to have a certain level of coverage to protect their investment.

Home insurance covers four standard areas:

• Your home's physical structure: This includes repair or rebuilding costs if your home is damaged or destroyed by fire, hurricane, hail, lightning, or other disasters listed in your policy. Some policies also cover detached structures such as garages, tool sheds, or gazebos. It is important to note that standard policies do not cover damage caused by floods, earthquakes, or routine wear and tear.
• Your personal belongings inside the home: This includes items such as furniture, clothes, sports equipment, and other personal items that are stolen or destroyed by fire, hurricane, or other insured disasters. The coverage is typically 50 to 70% of the insurance on the structure of the house, and it also includes items stored off-premises. Expensive items like jewelry, art, and collectibles are covered, but there are usually dollar limits for theft.
• Liability protection: This provides legal protection in case of lawsuits for bodily injury or property damage caused by you, your family members, or your pets. It also covers medical expenses for individuals accidentally injured on your property.
• Additional living expenses: If you need to live away from home due to damage from an insured disaster, this coverage pays for additional costs such as hotel bills and restaurant meals.

Other things that are typically covered by home insurance include:

• Dwelling coverage: This pays to repair or rebuild your home's structure, including attached structures like a garage or deck, and permanently installed materials like countertops and built-in appliances.
• Personal property: This covers your belongings in the event of theft, fire, or other covered events. This includes jewelry, artwork, sports equipment, clothing, and furniture.
• Loss of use: If you are forced to leave your home due to a covered loss, this coverage pays for temporary housing and living expenses.
• Medical payments: This covers medical expenses for individuals who are injured on your property, regardless of fault.
• Other structures: This option protects unattached structures like a detached garage, fence, pool, or shed.
• Personal liability: This provides financial support and legal protection if you are responsible for injuries or property damage to others.

It is important to note that home insurance policies can vary, and there may be exclusions or limitations to your coverage. For example, standard policies typically do not cover damage caused by flooding, earthquakes, wear and tear, or insufficient maintenance. Additionally, there may be coverage limits for certain high-value items, and you may need to purchase additional insurance to fully cover them.

What happens if I don't have home insurance?

While there is no federal or state law that requires homeowners to have home insurance, it is still highly recommended that you do. Home insurance is designed to protect your assets and safeguard your home and property. Here are some reasons why you should not skip home insurance:

Possibly Losing Your Home

If you have a monthly mortgage, your lender will likely require you to have home insurance to protect their investment. If they discover that your home isn't insured, they may initiate foreclosure, resulting in the loss of your home. They could also force you to get home insurance by purchasing a policy for you and adding it to your monthly mortgage payments.

Not Being Able to Make Repairs

Home insurance covers the cost of repairs or rebuilding your home in the event of damage caused by disasters such as windstorms, tornadoes, hail, fire, or lightning strikes. Without insurance, you would have to pay for these repairs yourself, which could be financially devastating.

No Financial Help if Your Home Is Robbed

Home insurance typically covers losses due to theft or vandalism. If your home is robbed and you don't have insurance, you will have to replace your stolen items yourself. Home insurance can also protect your belongings outside of the home, such as in a hotel room or your child's dorm room.

No Financial Protection From Problems Created by Guests

If someone gets injured on your property and sues you, home insurance will cover your legal fees and any financial penalties. Without insurance, you would have to bear these costs yourself. Home insurance also covers damage caused by guests to your home or their belongings.

Costly Bills and No Coverage

Home insurance covers personal property loss and injuries on your property. Without insurance, you may have to pay out of pocket if someone sues you for an injury sustained on your property or if your expensive electronics are stolen.

In summary, while home insurance is not legally required, it is crucial for protecting yourself financially. The consequences of not having home insurance could be far more costly than the insurance premiums.

What are the best home insurance companies?

While it is not a legal requirement to have home insurance, it is a good idea to protect your home and belongings. When choosing a home insurance company, it is important to consider factors such as standard cost, dwelling and structure coverage, identity theft protection, valuable possessions coverage, and available discounts. Here is a list of some of the best home insurance companies:

Amica

Amica is rated as the best home insurance company by US News and World Report. They offer two types of homeowners policies: the Standard Choice plan and the Platinum Home Choice plan. The Platinum policy includes everything in the Standard Choice policy, as well as optional coverage for water backup, replacement cost coverage for personal belongings, and expanded coverage for computers and business property. Amica policies are available in 48 states and Washington, D.C., but not in Alaska or Hawaii.

State Farm

State Farm is the least expensive insurer, with an average monthly premium of $88.83. They offer various options such as coverages for identity theft, home systems, service lines, and energy-efficient upgrades. State Farm policies are available in 47 states and Washington, D.C., but not in California, Massachusetts, or Rhode Island.

Allstate

Allstate is the most expensive insurer, with an average monthly cost of $264. However, they offer a wide range of discounts, including bundling with an Allstate car insurance policy and being a non-smoker. Allstate policies are available in 49 states and Washington, D.C., but not in California as of June 2023.

USAA

USAA insurance is only available to current and former military members and their families. Their policies include military-specific protections, such as coverage for military uniforms and equipment, and no deductible for belongings damaged or lost due to war. USAA is available in all 50 states and Washington, D.C.

Nationwide

Nationwide includes coverage for credit card fraud and building ordinances in their standard homeowners policy. They also offer several discounts, such as for having a "smart home" and protective devices. Nationwide's policies are available in 44 states and Washington, D.C.

Erie Insurance

Erie Insurance is a regional insurance carrier available in 12 states and Washington, D.C. They offer replacement cost coverage and options for water backup, underground service lines, and identity recovery coverages.

Lemonade

Lemonade is a digital insurance company that allows customers to purchase, file claims, and manage their policies through their website or mobile app. They offer coverage for swimming pools, buried utilities, water backup, and equipment breakdown. Lemonade is available in 22 states and Washington, D.C.

Chubb

Chubb's standard policy includes water backup and replacement cost. They are the only company in the rating to offer its own flood insurance policy. Chubb's policies are available in all 50 states and Washington, D.C.

Liberty Mutual

Liberty Mutual offers a basic standard policy that covers dwelling, personal belongings, liability, guest medical coverage, and loss of use. They also have several optional coverages, such as water backup and valuable items coverage. Liberty Mutual's policies are available in all 50 states and Washington, D.C.

Travelers

Travelers is one of the least expensive companies, with an average monthly cost of $134.70. They offer common discounts, such as bundling policies and having protective devices, as well as a unique discount for having a LEED-certified "green home." Travelers' policies are available in all 50 states and Washington, D.C.

How much does home insurance cost?

The cost of home insurance depends on a variety of factors, including location, claims history, coverage limits, and the characteristics of your home. The average cost of a 12-month home insurance policy in the US is $2,230 per year, or $186 per month, for a policy with $300,000 in dwelling coverage. However, this can vary significantly depending on your specific circumstances.

For example, the average cost of home insurance in the UK is £140 per year for a combined home and contents insurance policy. In the US, the cost of home insurance varies by state, with Nebraska, Oklahoma, and Kansas being the most expensive, and Vermont, New Hampshire, and Delaware being the least expensive. The cost of home insurance can also depend on the company you choose, with Erie, Auto-Owners, and USAA offering some of the lowest average rates for $300,000 in dwelling coverage.

Other factors that can affect the cost of home insurance include the age of your home, the condition of your roof, the materials used in construction, and whether you have made any claims in the past. Additionally, the amount of coverage you choose will also impact your premium, with higher coverage limits typically resulting in a higher premium.

It's important to shop around and compare quotes from multiple providers to find the best home insurance policy for your needs.

Frequently asked questions