And even if you aren\u2019t obligated to have homeowners insurance and are considering declining coverage, you should have all the intel you need to inform that decision. (Spoiler: You probably should just get the coverage!)<\/p>\n
Here\u2019s a primer with expert tips to help you understand how home insurance works.<\/p>\n If you have a mortgage loan<\/a>, it is likely that homeowners insurance is a requirement \u2014 for at least the outstanding amount of your loan.<\/p>\n If it\u2019s not<\/i> required under the terms of a mortgage loan, homeowners insurance is likely optional, and a personal decision. But most experts (and laypeople) consider it a necessity both for protection and for peace of mind. If something happens to your home \u2014 or something happens on your property and you\u2019re sued as a result \u2014 you might be wiped out financially if you\u2019re not carrying a policy to offset those risks.<\/p>\n \u201cWhen you have a mortgage, you have to have home insurance,\u201d says Gregory Brown<\/a>, a top-selling agent based in Fort Wayne, Indiana, who\u2019s sold 459 single-family homes. \u201cIf you\u2019re buying a home with cash, they don\u2019t require it \u2014\u00a0but it would be pretty crazy not to have insurance.\u201d<\/p>\n That\u2019s because the reality is, \u201cStuff can go wrong that you can\u2019t always predict.\u201d Brown explains that his insurance helps him \u201csleep a lot better at night\u201d and enjoy his kids\u2019 pool parties at the family home. He says, \u201cI\u2019ve got teenagers now. Knowing that I\u2019m covered if they do something I can\u2019t prevent \u2014\u00a0it\u2019s nice when you know that your life won\u2019t be turned upside down if something happens that\u2019s out of your control.\u201d<\/p>\n In a typical policy, your possessions are covered \u2014\u00a0both inside the house or when you are carrying them elsewhere and something happens.<\/p>\n Also covered are structures on your property: your house, as well as any other structures, such as detached garages and sheds<\/a>. As well, your policy will include some liability coverage for damage or injuries sustained at home \u2014 and even away from it, too.<\/p>\n So consider that if your dog bites someone on your property<\/a>, or even elsewhere, your policy can help cover the associated medical and legal costs.<\/p>\n Events such as fire<\/a>, explosions, hail, and water damage (but not water damage associated with floods) are all covered circumstances that would trigger a policy, as is theft.<\/p>\n Homeowner\u2019s insurance policies will not<\/i> include certain events such as earthquakes and floods<\/a>, often associated with regional-specific concerns. Also excluded are mold, landslides, government action, and nuclear hazards. Wear and tear to a home are not included, either.<\/p>\n \u201cIf your roof is 30 years old and the shingles are deteriorated, they\u2019re cracking and curling from age, you\u2019re not going to be able to call your insurance company and say, \u2018My roof is bad and I need a new roof,\u201d Brown explains. \u201cNow, if your roof has hail damage, or your roof is 10 years old and a tornado comes and takes half the shingles off, or a tree falls on your roof \u2014 that is going to be covered.\u201d<\/p>\n A common type of policy is called an HO-2. This is a basic policy that covers a specific list of problems, including fire, theft, riots, smoke \u2014 and a dozen other named issues. But that\u2019s it.<\/p>\n For more comprehensive coverage, there\u2019s an HO-3 policy. HO-3 covers all risks \u2014 not just the specific named ones \u2014 except ones that the insurance company specifically excludes.<\/p>\n The most comprehensive policy is an HO-5, which covers both the home and other structures on the property from all problems that the insurance company hasn\u2019t specifically excluded.<\/p>\n (For reference, HO-4 is a renter\u2019s insurance policy, which covers tenants\u2019 belongings, but not the property itself.)<\/p>\n Brown also believes that homeowners should consider buying an additional umbrella policy.<\/p>\n \u201cAn umbrella policy covers you for more than just what\u2019s in your standard homeowners insurance and your car insurance,\u201d he says. \u201cWe have a pool<\/a>. We have a lot of kids come over for the pool.<\/p>\n \u201cAnd if anybody were to have a catastrophic event in the pool, a lot of normal homeowners insurance coverages will only go up to like $250,000 or $300,000. If you\u2019re in a situation where somebody gets paralyzed or dies, and you get into some nasty lawsuit, you could lose everything.\u201d<\/p>\n For his own $2 million umbrella policy, Brown pays about $400 annually. \u201cSo it\u2019s not that much money,\u201d he says, given the level of coverage and peace of mind it brings. \u201cAccidents can happen, and for the little bit of money that you spend, you\u2019re protecting your largest investment of your life. I\u2019m not a big guy on getting insurance for my TV, my blender, and my microwave \u2014\u00a0but I definitely am on my house.\u201d<\/p>\n The insurance review encompasses home attributes and features such as square footage, building costs, crime rates, proximity to a fire hydrant, and other factors.<\/p>\n When you consider how much coverage you\u2019ll need, you\u2019ll make a choice between replacement cost or actual cost value.<\/p>\n Replacement cost is the spendier choice; it doesn\u2019t factor in depreciation for payouts. It means the insurance company would pay out to the homeowner an amount equivalent to replacing what\u2019s been damaged, capped at an amount specified in the policy, and deduction is not taken for depreciation. This allows you to replace your stuff with new items at their current cost in the marketplace.<\/p>\n Actual cost value refers to the real cost of replacing the property, minus the costs of depreciation. So you would get a payout based on what your stuff was worth at the time it was damaged or lost. This policy costs less \u2014 and it covers less, too, in terms of payout.<\/p>\n An extended replacement cost policy raises the payout even higher, and is meant to take into account such factors as the possibility of higher building costs at the time new construction<\/a> is needed.<\/p>\n A typical policy covers belongings within the home, up to a value between 50% and 70% of the total home value<\/a>. If you have high-value items, consider how much coverage you\u2019d need to replace them individually.<\/p>\n You should inventory your possessions both to help determine how much coverage you need, and also to document your stuff should you need to file a claim. You can do this by creating a list of items and descriptions<\/a> (including brand names, specs, and serial numbers).<\/p>\n You can do a video walkthrough of your home to show these belongings clearly in a clip for your files: It\u2019s as simple as walking through your home and making a record of the contents. Narrate what you\u2019re documenting, like: \u201cSamsung 70-inch LED TV, purchased in 2014\u2026\u201d Open all the drawers, cabinets, and closets in your walkthrough to show and record everything.<\/p>\n Various apps also offer easy platforms for taking such inventory from your smartphone. Sortly<\/a> and Memento Database<\/a> are both highly rated for this purpose, and both available for iOS and Android.<\/p>\n Also consider your liability needs vis-a-vis the cost of defending yourself in the unfortunate event of a personal injury lawsuit. If a basic policy could include $100,000 to $300,000 in liability coverage, you might consider adding two or more times that amount to protect yourself in a meaningful way if you\u2019re sued.<\/p>\n It\u2019s a good rule of thumb to review your policy annually, and talk to your agent every year about coverage amounts.<\/p>\n Under certain circumstances, you might want to increase your liability coverage \u2014 even temporarily. Situations might include times when you\u2019re renovating your home, or perhaps are operating a home daycare center or other business.<\/p>\n As well, you should consider any changes you\u2019ve made to the home since your last policy update.<\/p>\n \u201cI tell people to make changes to their policy whenever they do any major project, like you finish your basement<\/a>,\u201d Brown says. \u201cIf your basement wasn\u2019t finished when you bought the home, there was nothing down there to insure \u2014\u00a0so you don\u2019t have that coverage,\u201d unless you add it later.<\/p>\n![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/how-does-home-insurance-work-laptop-666x381.png\")
<\/a>Do you have<\/i> to get homeowners insurance?<\/h2>\n
What\u2019s covered under homeowners insurance \u2014 and what isn\u2019t?<\/h2>\n
What are the types of homeowners insurance policies?<\/h2>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/how-does-home-insurance-work-house-1-666x381.png\")
<\/a>How does the insurance company insure your home?<\/h2>\n
How much possession and liability coverage should you have?<\/h3>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/how-does-home-insurance-work-kitchen-666x381.png\")
<\/a>When should you make changes to your homeowners insurance policy?<\/h2>\n