Rob McGarty<\/a>, a top real estate agent in Seattle<\/a> who works with 69% more single-family homes than average agents in the area, recognizes that often buyers get insurance just to check that box off for closing. He says, \u201cFor most people, insurance is reactionary. We try to help make it more proactive.\u201d<\/p>\n As an agent at Magnolia Insurance, Toni Matous works closely with McGarty. She says, \u201cA home is one of the biggest financial assets that people have in their portfolio, so we want to let them know the options that they have to protect it properly.\u201d<\/p>\n With those perspectives in mind, we\u2019re going to break open the glass box \u2013\u2013 figuratively, of course \u2013\u2013 to help homebuyers understand the ins and outs of insurance policies.<\/p>\n Understanding homeowners insurance has to start with function. When you really need it, what does your insurance policy actually do<\/i><\/a>, anyway?<\/p>\n Louise Juracek<\/a>, an expert real estate agent for almost four decades in Bakersfield, California<\/a>, says it\u2019s important for buyers to be informed about how their particular insurance policy works.<\/p>\n \u201cIt\u2019s an education process. You\u2019re building equity in your home, and you want it protected. If something were to happen there, like a natural disaster, homeowners insurance is going to step in and give you some monetary remuneration.\u201d<\/p><\/blockquote>\n Every homeowners insurance policy is set up with certain coverage limits. That means if something bad happens, the insurance company will give you money \u2014 but only up to that limit.<\/p>\n Your mortgage lender will likely require you to have coverage limits that will at least cover your loan amount. But in practice, it\u2019s best to have the entire value of your home covered.<\/p>\n Let\u2019s say a meteor strikes and completely demolishes your $200,000 house. If you only have a coverage limit of $150,000, you\u2019ll suffer a pretty devastating $50,000 loss.<\/p>\n Coverage limits can get a little tricky, though, because insurance companies have different valuation methods when it comes to paying out on a policy. Every homebuyer should look at the terms of their coverage. Is the policy based on replacement cash value, extended replacement cash value, or actual cash value?<\/p>\n Policies written with replacement cash value (RCV) will pay the homeowner the cost to replace or repair home damage and make it new.<\/p>\n Meaning: If a wind storm knocks a tree through your roof, an RCV policy will give you the money to pay for a completely new roof.<\/p>\n Extended replacement cash value (ERCV) is kind of a bonus RCV package, if you will.<\/p>\n ERCV is an inexpensive add-on, usually designed for homeowners in areas that are more prone to large-scale natural disasters. When a natural disaster hits, the price of supply and labor goes up, and your regular RCV coverage limit may not be enough. So if a hurricane ruins your roof \u2013\u2013 and roof prices skyrocket because your whole community needs a new roof at the same time \u2013\u2013 ERCV is there to give your coverage a limited boost.<\/p>\n Policies that cover actual cash value (ACV) will pay the homeowner the amount necessary to return the home to as-is condition.<\/p>\n This coverage looks at depreciation when determining how much the payout will be. So if a windstorm knocks a tree through your 12-year-old roof, an ACV policy will give you money for a roof \u2026 depreciated by 12 years.<\/p>\n Obviously, ACV is not ideal for most homeowners, but sometimes older homes will only qualify for ACV coverage.<\/p>\n An insurable event refers to disaster-related damage that is covered by your insurance policy. Matous says that it\u2019s important to realize that not everything is covered by all policies<\/a>, so it\u2019s important to speak with your agent about the specifics of your coverage.<\/p>\n Usually, the insurable events on homeowners insurance policies are written in one of two ways: named perils or open perils.<\/p>\n Named peril policies cover only<\/i> the disasters that are listed, or named, on the policy. If something happens to your home, and the event is not on the list, the damage is not considered an insurable event.<\/p>\n Open peril policies cover all disasters except<\/i> those listed on the policy. Therefore, if something happens to your home, and the event is<\/i> on the list, the damage is not considered an insurable event.<\/p>\n In some cases, it\u2019s possible to add additional coverage for an event that you\u2019d like to be insurable. For instance, floods are not usually considered an insurable event for most regular insurance policies, but homeowners have the opportunity (and sometimes the requirement!) to purchase separate flood insurance.<\/p>\n Read your policy carefully to make sure that it covers the major hazards in your area. Talk to your insurance agent and your real estate agent if you have any questions about your insurable events.<\/p>\n If damage from an insurable event happens to your home, you can file a claim with your insurance company. Your insurance agent can assist you with the actual process, since it differs from company to company.<\/p>\n In the event of a claim, Matous says, \u201cWe always ask clients to call us first. We want to be there to advocate for them and help them through the claim process.\u201d<\/p>\n After the claim is filed, you\u2019ll pay a deductible amount, as outlined in your insurance contract. A deductible is your out-of-pocket portion due for the damages. After the deductible, your insurance should pay for the rest of the repairs, up to your coverage limit.<\/p>\n Most people think of homeowners insurance in terms of dwelling coverage (sometimes called hazard coverage), but that\u2019s usually just one line item on a home insurance policy. Your homeowners insurance might also include these other types of coverage relating to your property.<\/p>\n If someone is injured on your property, and you are found to be liable, the liability coverage<\/a> on your homeowners insurance policy may kick in. In some cases, off-property injuries may even be covered.<\/p>\n Basically, if you or someone in your household is sued due to negligence or an accident, your homeowners insurance protects you from the possibility of losing your house as a result. Liability coverage comes with certain limits, just like dwelling coverage.<\/p>\n Additional living expenses coverage is the part of your homeowners insurance policy that covers costs related to being displaced from your home. If you need to stay in a hotel during insured event repairs, your insurance should cover that cost under additional living expenses.<\/p>\n While dwelling coverage usually only refers to the structure of the home, personal property coverage refers to your belongings inside the home. However, it\u2019s important to have documentation of those items in order to prove both their existence and their damage to the insurance company.<\/p>\n After you move into your new home, take photos or a video of each room for personal property insurance purposes. Don\u2019t forget to photograph any valuables that may be hidden from sight as well.<\/p>\n Store a physical backup of the photos\/video in a fire-proof safe or utilize a cloud storage platform, just in case your phone or camera is damaged.<\/p>\n Juracek relates an instance when homeowners suffered an electrical fire in their home. The fire damage was minimal, but the smoke damage to their personal property was extensive. Under this portion of their policy, the homeowners were able to get everything \u2013\u2013 even their clothing \u2013\u2013 professionally cleaned or replaced.<\/p>\n Homeowners insurance can be purchased from an insurance agent. If you already have insurance for a vehicle, you may want to start with that company; sometimes they can offer you a package deal for home and auto insurance. But it\u2019s always best to get several quotes <\/a>(at least two or three) before making a decision about insurance.<\/p>\n Ask your real estate agent for insurance agent referrals, if necessary. McGarty and Matous recognize the value-added for buyers when they can work together. McGarty says, \u201cWe want our clients to have an amazing experience,\u201d and he knows that connecting clients with high-quality professionals is a big part of ensuring homebuying success.<\/p>\n![\"An](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/03\/how-does-homeowners-insurance-work-house-666x381.png\")
<\/a>How does homeowners insurance work when making a claim?<\/h2>\n
Coverage limits<\/h3>\n
Replacement cash value<\/h4>\n
Extended replacement cash value<\/h4>\n
Actual cash value<\/h4>\n
Insurable events<\/h3>\n
Deductibles<\/h3>\n
![\"An](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/03\/how-does-homeowners-insurance-work-woman-666x381.png\")
<\/a>What else does homeowners insurance do?<\/h2>\n
Liability coverage<\/h3>\n
Additional living expenses coverage<\/h3>\n
Personal property coverage<\/h3>\n
Where can you get homeowners insurance?<\/h2>\n