What to Consider When Buying Homeowners Insurance

Homeownership can be one of life's greatest rewards, but it also comes with a hefty dose of responsibility. How do you protect what may be your most valuable financial asset? Purchasing homeowners insurance can help provide that protection, but make sure your policy is tailored to your specific needs.

A homeowners insurance policy provides financial protection on your home in the event of damage or a disaster. With this protection, your insurance company may cover the cost of the damage to your property, minus the deductible.

The purpose of homeowners insurance is to protect homeowners and their families when the unexpected happens. The right type of policy can help ease some of the stress and burden in the aftermath of that loss.

What Should Be Included in a Homeowners Insurance Policy?

In order for the insurance company to cover the full cost of damage to your home, the minimum required coverage is typically 80 percent of the house's total replacement value. But it's important to remember that if you choose the 80 percent minimum, you will be responsible for any additional home rebuild or repair costs once you reach your policy limit. Speak to your agent about your policy's minimum requirements to cover full damage.

A homeowners policy can include coverage for the cost of materials and construction for rebuilding your home, as well as demolition, debris removal, and proper disposal of any hazardous waste.

As for the contents of your home, look for a policy that covers the replacement cost of items rather than the actual cash value, Wilson says. For example, if you have a 10-year-old TV, an actual cash value settlement will pay you what the TV is worth now — much less than what you will pay to replace it with a new model.

Other key policy components to look for include:

  • Liability protection: If you or your family members cause property damage or injury to others, liability protection can help cover you against lawsuits and may pay any resulting legal costs. Liability protection can also pay for certain medical expenses if a non-resident is hurt on your property.
  • Additional living expenses: This form of coverage can cover temporary lodging and living expenses if you can't continue to live in your home due to a loss and repairs are being made.

How Much Will My Homeowners Insurance Deductible Be?

Like other types of insurance, you'll have to meet a deductible before a homeowners insurance claim is paid. The deductible can be either a flat rate or a rate based on a percentage of your home's insured value. The minimum deductible amount can vary based on your location and the insurance company's requirements.

When choosing your deductible, consider that a higher deductible means lower premiums, and vice versa. Ultimately, determine how much money you can comfortably afford to pay out of pocket in the event of damage or a disaster.

What Else Should I Consider?

Homeowners in coastal areas might consider hurricane coverage; owners who live in areas with seismic activity, or who have solid brick or stone homes, might consider earthquake coverage, Wilson says.

Regardless of your location, look into flood protection, which is not covered under homeowners insurance but can be provided by the federal government. Nearly 25 percent of flood claims filed through the National Flood Insurance Program (NFIP) are made by people who live outside of mapped high-risk flood areas. Homeowners in low-risk zones can ask about preferred rate programs, which offer rates for people living in areas that typically don't flood.

Depending on your location and personal circumstances, you might want extra protection in the form of a rider or endorsement. For an extra cost, a rider can add coverage that is not included in your basic policy.

You may want to inquire about coverage for water/sewer backup, personal injury, loss assessment, ID fraud, equipment breakdown, pet liability, and valuable possessions such as jewelry and antiques.

Overall, the key for homeowners is to understand what their policy covers and the types of losses most common in the area where they live. A qualified insurance agent can identify areas of concern to help homeowners make informed insurance decisions.