Homeowners Insurance 101 | FAQs

What Is Homeowners Insurance?

Homeowners insurance, also referred to as home insurance or property insurance, provides coverage for your private home and compensates you in the event of a loss. There are several types of homeowners insurance, but the HO-3 policy is the most common. If your home is burglarized or is partially or totally destroyed by a cause that is covered by your policy, homeowners insurance will help you replace your belongings, repair your home, or even rebuild.

Homeowners insurance also provides liability coverage which protects you, the homeowner, in the event that someone is injured on your property or you are deemed responsible for personal injury or property damage through negligence.

The amount of compensation you receive in a claim, or that the claimant receives from your insurance company when filing a liability claim against you, depends on the limits set for your policy.

An independent insurance agent in our network can help you to determine the amount of coverage that makes the most sense for your home and your risk tolerance.

What Does Homeowners Insurance Cover?

Homeowners insurance provides coverage for a range of risks that you may face as a homeowner that otherwise can be financially challenging to cover out of pocket. These include:

Property damage: This includes damage and destruction to your residence and/or detached structures. You will receive compensation, up to the limits of your policy, if your house or storage shed is damaged due to a covered hazard. Standard covered circumstances include things like hurricanes and vandalism, but other hazards such as earthquakes and floods are excluded. Be sure to check your homeowners policy for exclusions.
Personal property loss: Includes damage or theft of personal property, up to your set policy limits for covered circumstances, which typically excludes flooding, earthquakes, and personal negligence. If your personal property is very valuable (such as collectibles or antiques) you’ll likely need additional “riders” or special endorsements on your policy. Be sure to talk with a knowledgeable agent about your personal belongings and valuables, as standard limits may not be adequate to cover a major loss.
Personal liability: If you, your family member, or even your pet causes an accident, injury or property damage, your homeowners insurance can protect you. Whether the issue requires medical care or repair of property, you will typically have coverage up to your liability limits. There are exclusions, such as aggressive acts against a neighbor, so it is important to fully understand your liability coverage. Be sure to talk with an agent about how to choose adequate policy limits that protect your finances in the event of a lawsuit.
Added living costs: If your house is uninhabitable, your homeowners insurance can pay for alternative living arrangements while your home is repaired or rebuilt. Depending upon your homeowners insurance company and the specifics of your policy, this may be included or may be an optional coverage. You will typically have daily and total overall limits for this coverage.

How Does Home Insurance Work?

When you buy home insurance, you’re buying a safety net for your home. If your home is damaged or destroyed, it can cost thousands of dollars – even hundreds thousands of dollars – to repair or rebuild.

Without home insurance, that money has to come out of your pocket. But if you’re insured, you can file a claim to pay for the damage and help rebuild your dreams. Your homeowners insurance will also cover theft of your personal belongings, including when you take them with you in your car or while you travel.

In the event you suffer a loss, whether from burglary, fire or a severe storm, call your insurance agent or insurance company to begin the claims process. An adjuster will work with you to assess the damage and determine your compensation.

The benefits you receive will depend upon several factors, including:

The limits set on your policy, both for your structural property and your belongings.
The deductible amount you pay before your coverage kicks in.
Whether you have chosen coverage for the actual cash value (depreciated) or the replacement value of your home and belongings.

Is Homeowners Insurance Required?

Your state may or may not require homeowners insurance, but your mortgage lender typically will require coverage in order to provide a home loan. Even if you own your home outright and you are not required to buy homeowners insurance, it’s still a good idea to protect your investment with an insurance policy.

That way you can get the financial compensation you need to repair or rebuild after a loss. Not only that, but your home coverage can help to protect you financially in the event of a liability claim that leads to a lawsuit.

Why Is Homeowners Insurance Important?

Homeowners insurance is important for a variety of reasons:

If you’re insured, any significant repairs or rebuilding after a disaster can potentially be covered by your insurance policy, up to your set limits.
If you owe money on your mortgage and your home is completely destroyed, you will still be required to pay your home loan, unless you have adequate homeowners insurance. Homeowners insurance can help pay for the rebuilding cost. If you insure your house at full replacement cost value, you will have the means to fully rebuild, if needed.
Liability coverage is arguably the most important aspect of homeowners insurance. If something happens to a visitor on your property, your liability coverage can cover that person’s medical costs, well as your legal fees if you are sued. Lawsuits are expensive and hiring a lawyer can cost thousands of dollars. If you’re found responsible, you could be ordered to pay large sums of money in a personal injury suit, a cost that can be offset by your liability coverage.

When Should I Get Homeowners Insurance?

Your mortgage lender will require you to purchase homeowners insurance before closing on your home. It’s important to shop around for the right policy for your needs. There are many factors that determine the right insurance coverage. A Trusted Choice member agent in your area can help you compare policies and quotes to find the best coverage for your needs.

Is Homeowners Insurance Tax Deductible?

Your insurance premiums are not tax deductible except under special circumstances. You do receive other tax benefits as a homeowner, but they are not related to homeowners insurance.

If you’re a landlord or a homeowner who uses part of your home for business purposes, you may be able to deduct a portion of your homeowners insurance. A tax advisor is your best resource in determining what you can and cannot deduct on your taxes.

Is Homeowners Insurance Included in the Mortgage Payment?

Homeowners insurance is not included in your mortgage payment, unless it is escrowed. Today, creating an escrow account that covers your mortgage payments, your home insurance and even your property taxes is common practice.

Additionally, your mortgage insurance is typically included in your mortgage payment. This is paid if your loan exceeds 80 percent of your home’s value. Mortgage insurance does not insure your home. It insures the bank if you default on your loan.

Can Your Homeowners Insurance Be Canceled?

Homeowners often ask "Can my homeowners insurance drop me?" Yes, your insurance company can drop you, but it’s important to know that being dropped (considered a non-renewal) is different from being canceled.

When you are dropped by your insurance provider, your insurance policy is not renewed at its expiration date and you must pursue another provider. You will be informed if your policy is going to be dropped so you have adequate time to shop for new coverage.

Your homeowners insurance can be canceled at any time as long as you are notified that it will be occurring. In some states the insurance company can cancel during the first 60 days for any reason.

After 60 days, the reason for cancellation must be due to a specific circumstance such as non-payment, misrepresentation or increase in risk. You’ll typically receive a cancellation notice 10 to 30 days in advance of cancellation, depending on the reason your insurer cites.

How Much Homeowners Insurance Do I Need?

Make sure your homeowners insurance covers the following areas:

Structure of home: Insure your home for its replacement value. This is how much it would currently cost to build your home from scratch. (Be sure you have an accurate estimate of your home’s value.) The amount it would cost to sell your house is not a good indicator of the replacement value.
Personal belongings: Most policies cover your personal belongings at 50 to 70 percent of your home’s value. This may not be enough coverage if you have many valuable items. Conduct an inventory of your personal belongings to find out how much coverage you need and insure them at replacement cost. For antiques or high value items, you may need to purchase a personal articles policy or additional “rider” that can provide more complete coverage.
Liability: A basic policy might include $100,000 to $300,000 of liability coverage. Considering the cost of personal injury lawsuits, you may want to purchase liability insurance with higher $300,000 to $500,000 limits.
Vacant homes: If your home will be vacant for an extended period of time, there are options to expand coverage during that period. If your home is unoccupied, certain coverage may be limited on your homeowners policy.

For additional protection and peace of mind, consider buying an umbrella liability policy, which can add another $1 million or more in liability coverage.

An umbrella policy is an excellent way for anyone to increase liability protection, but it's an especially good idea for anyone with more valuable than average assets to protect, or particular liability concerns.

How Is Homeowners Insurance Paid?

You can always pay the insurance company directly for your homeowners policy, but you have other options. You can ask your mortgage company about escrow, which allows you to pay your homeowners insurance payment along with your mortgage payment.

The insurance payment is placed into an escrow account where it is held by the mortgage company until the annual premium is met. At that point, the mortgage company pays the homeowners insurance annual premium to the insurance company.

This allows you to break your insurance premiums into smaller payments and you only work with one company. Escrow may not be available for everyone, though, so check with your lender.

Where Can I Get Homeowners Insurance?

When you start your search for homeowners insurance, it’s important to assess your needs to determine the right amount of coverage. It can be tempting to choose a policy based on price alone, but you probably won’t get the right amount of protection using that method.

Protecting your investment doesn’t mean breaking the bank. You can get a range of quotes and options from an independent Trusted Choice member agent.

When you work with an independent agent, you’ll never have to wonder if you should have looked at more policies from different home insurance companies. You will have the opportunity to compare several options from top companies and find the best policy and value for your needs, all while letting your agent do the legwork.

Contact a local independent insurance agent today for personalized homeowners insurance quotes.

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