Insuring Your Home: The Ultimate Guide

Insuring your house properly is essential to protect your assets in the event of fires, theft, accidents or other disasters. Homeowners insurance covers common problems that may damage your house or property, such as fire, theft, wind and hail damage, falling objects (like a tree) and vandalism. When choosing a home insurance policy, you should aim for enough coverage to protect all of your assets if your house is destroyed in a disaster or you're held liable in a lawsuit. There are several types of homeowners insurance policies, and you should consider your needs and budget before making a decision.

Understand the different types of coverage

When it comes to insuring your house properly, it's important to understand the different types of coverage available. Here's a detailed overview of the various home insurance policies:

HO-1 Policy

The HO-1 policy is the most basic type of home insurance, offering limited coverage. It is not available in most states and typically does not include liability or personal property coverage. This policy covers the structure of your home against specific perils, such as fire, lightning, windstorms, hail, and vandalism. It is important to note that only the perils explicitly listed are covered, and any unnamed perils are excluded.

HO-2 Policy

The HO-2 policy, also known as the broad form, provides coverage for a wider range of perils than the HO-1. In addition to the perils covered by HO-1, HO-2 includes protection against damage from falling objects, water damage from plumbing or appliance overflow, and weight of ice, snow, or sleet. Like HO-1, it is a named peril policy, and it also covers personal belongings in the home.

HO-3 Policy

The HO-3 policy is the most common type of home insurance, offering broad coverage. It protects your home and belongings from all perils except those specifically excluded, such as earthquakes, floods, and landslides. This policy includes coverage for personal belongings, liability, additional living expenses, and medical payments.

HO-4 Policy (Renters Insurance)

The HO-4 policy, also known as renters insurance, is designed for renters and does not cover the structure of the home. Instead, it covers personal belongings, loss of use, and liability. It is important for renters to have this type of insurance to protect their possessions and provide coverage if they are unable to live in their rented home due to a covered peril.

HO-5 Policy (Comprehensive Form)

The HO-5 policy offers the highest level of coverage and is considered the most comprehensive. It covers your home, belongings, liability, additional living expenses, and medical payments. Unlike the HO-3 policy, the HO-5 covers personal property for almost every peril unless explicitly excluded. This policy provides replacement cost coverage for personal property losses, rather than actual cash value.

HO-6 Policy (Condo Insurance)

The HO-6 policy is designed specifically for condo owners. It covers the interior of the condo, including renovations, walls, floors, and ceilings. It also includes additional living expenses, medical payments, and personal liability. Condo owners should review their condo association's insurance policy to ensure their coverage aligns with the association's coverage.

HO-7 Policy (Mobile Home Form)

The HO-7 policy is for mobile or manufactured homes, providing coverage for the structure, personal belongings, liability, additional living expenses, and medical payments. This policy covers the exterior of the mobile home as an open peril policy, while personal belongings are covered under a named peril policy for specific events.

HO-8 Policy (Modified Coverage Form)

The HO-8 policy is designed for older homes, typically built more than 40 years ago. It functions like standard home insurance but may include provisions to accommodate the unique needs of an aging home. This policy covers the structure, personal property, liability, additional living expenses, and medical payments for specific perils, such as riot or civil commotion, and vandalism.

Additional Coverage Options

In addition to the standard home insurance policies, there are optional coverages that can be added to suit your specific needs. These include flood insurance, earthquake insurance, replacement cost plus coverage, water backup of sewer protection, other structures insurance (for unattached buildings on your property), personal umbrella liability insurance, and medical payments coverage for guests.

Choose a coverage amount

The amount of coverage you need for your home insurance will depend on several factors, including the size, age and features of your home, as well as the replacement cost for your belongings. Here are some steps to help you determine how much coverage you need:

• Know the difference between actual cash value (ACV) and replacement cost: ACV takes depreciation into account, while replacement cost covers the full cost of repairing or replacing your home and belongings without deducting for depreciation.
• Research local building costs: Understand the cost of building supplies and labour to restore your house to its current state or build an equivalent new home. Consider the number of bathrooms, materials used, special features, etc.
• Consider how you use your home: If you often host gatherings or have features like a pool or swing set, you may want to increase your medical payments and personal liability coverage.
• Research rental rates in your area: In the event of major damage to your home, you may need to live in temporary housing, so it's important to know the cost of renting or living in a hotel in your area.
• Take stock of your personal belongings: Create a detailed home inventory that includes the name, description, purchase cost, actual cash value, estimated replacement cost, etc. of your valuables. This will help you determine if you need additional coverage for specific items.
• Factor in your personal finances: Consider how much you can afford to pay out of pocket in the event of damage to your home or property. You may want to carry enough coverage to rebuild your dwelling and replace personal items, or opt for lower coverage with higher out-of-pocket costs in exchange for lower rates.
• Consider additional coverage: Even with robust home insurance, there may still be gaps in your coverage. Endorsements or add-ons can provide extra protection for specific items or perils.
• Revisit your policy annually: Personal factors and coverage needs may change over time, so it's important to review your policy regularly and make any necessary adjustments.

By following these steps, you can ensure that you have adequate coverage to protect your home and belongings in the event of a disaster or unexpected damage.

Decide on a deductible

When insuring a house, deciding on a deductible is an important step. A deductible is the amount of money that you are responsible for paying towards an insured loss. This is subtracted, or deducted, from what your insurance provider pays toward a claim. For example, if you have a $1,000 deductible on your policy and submit a claim for $8,000 for storm damage, your insurance provider will pay $7,000 towards the cost of repairs, and you will cover the remaining $1,000.

The deductible you choose will affect your insurance premiums. Generally, a higher deductible means lower premiums, and vice versa. This is because insurance companies know that those with a higher deductible won't file small claims, and they are reducing their own risk. Raising your deductible can save you between 20% and 40% on your insurance payments, depending on your insurance company and coverage. For example, according to Insurance.com's analysis, homeowners in Florida can save an average of $675 each year by increasing their deductibles from $500 to $2,500.

There is no standard deductible, but the average homeowners insurance deductible is $500. Some companies use a percentage-based deductible, particularly for hurricane damage. For example, a policy with a 2% deductible on a house with $150,000 of dwelling coverage will have a deductible of $3,000.

When choosing a deductible, it's important to consider your financial situation. You should opt for the highest deductible that you are comfortable with, whether that's from a psychological or monetary standpoint. If you have a lot of savings, a higher deductible makes sense as it will keep your premiums low. On the other hand, if you have little to no savings, a lower deductible is probably a better option. You should also consider your risk tolerance. If you are willing to risk paying a larger amount out of pocket, you can choose a higher deductible and benefit from lower monthly premiums.

It's also worth noting that you may have more than one deductible for the same policy. For example, you might have a dollar-amount deductible for all claims except for hurricanes or named storms, for which you have a separate, higher, percentage-based deductible.

Compare quotes from different insurers

Comparing quotes from different insurance providers is an effective way to find the best rates, coverage options, discounts, and other policy features for your needs. Here are some steps to help you compare quotes from different insurers:

Step 1: Understand Your Coverage Needs

First, you need to understand what a typical home insurance policy includes and excludes. This will help you structure a policy that works best for you. A standard home insurance policy usually covers:

• Dwelling coverage: This covers the estimated cost to rebuild your home and your home's physical structure if it is damaged in a covered loss.
• Other structures: Covers up to 10% of dwelling coverage for non-attached structures like a gazebo or fence if they are damaged in a covered loss.
• Personal property: Covers 50% to 70% of dwelling coverage for your personal belongings in your home and limited coverage for belongings in other locations like a storage unit.
• Additional living expenses: Covers 20% to 30% of dwelling coverage for expenses like hotel and restaurant bills if you are displaced from your home due to a covered loss.
• Personal liability: Covers legal expenses if you or a household member is found negligent for someone else's injuries or property damage, with most policies providing a minimum of $100,000 worth of coverage.
• Medical payments: Covers guests' medical bills if they are injured on your property, usually ranging from $1,000 to $5,000.

Step 2: Get Quotes from Multiple Insurers

Once you know your coverage needs, the next step is to request quotes from several home insurance providers. You can get quotes online, through a captive agent who works for a single insurance provider, or via an independent agent or broker who can provide quotes from multiple companies. It is recommended to collect at least three quotes to better gauge the cost of your policy.

Step 3: Review the Quotes

When reviewing the quotes, ensure that the coverage amounts, deductible, policy type, and whether your belongings are insured on an actual cash value or replacement cost value basis align with your needs and budget. These details can significantly impact your policy's overall cost.

Step 4: Choose Your Home Insurance Policy

While budget is essential, it is not the only factor to consider. Choose a company with a strong financial history, high customer satisfaction ratings, and robust coverage offerings. Opt for a company that will be there for you when you need to file a claim.

Gather information about your home

Gathering information about your home is an important step in getting an accurate homeowners insurance policy with the right coverage. Here are some key details you should have on hand when purchasing a policy:

• Year the home was built: The age of your home can impact the cost of your insurance policy. Older homes may require additional coverage for hard-to-replace features or to meet updated building codes.
• Number of rooms, bathrooms, and bedrooms: The size and layout of your home are important factors in determining the cost of rebuilding, which is a key component of your insurance coverage.
• Condition and age of the roof: The roof is a significant aspect of your home's structure, and its condition can affect the likelihood of leaks or other damage.
• Heating and cooling system information: Information about your HVAC systems can help assess the risk of fire or other issues and determine the cost of repairs or replacements.
• Mortgage information: Details about your mortgage can help determine the required insurance coverage and any additional requirements from your lender.
• Building materials: Knowing the type of building materials used, such as the siding or roofing material, can impact the cost of repairs or replacements.
• Home renovations: If you've made any significant renovations or additions to your home, such as finishing a basement or adding a custom feature, be sure to include this information.

It's also a good idea to create a detailed inventory of your personal belongings, including valuable items such as electronics, jewellery, and collectibles. This will help you determine the appropriate level of personal property coverage to include in your insurance policy.

Frequently asked questions