Homeowners insurance protects your financial investment in your home.
Based on your individual needs, you choose specific coverage to provide as much protection as you think necessary. Homeowners insurance is designed to pay for damages to your home and its contents, and also to protect you from financial liability if someone is injured on your property. If you take the time to understand how homeowners insurance works, you may avoid serious financial difficulties.
A basic homeowners policy covers specifically named risks— or perils— such as lightning, theft, fire, smoke, wind, and explosion. With a basic policy, any risk that is not specifically mentioned in the policy is not covered. You can, if you choose, purchase special policies that cover the house for all perils except those specifically excluded by the policy (e.g., flood damage).
Homeowners policies vary by company more than by state. The chart below illustrates typical coverage under a standard homeowners policy.
Exclusions and Additional Coverage
Read your homeowners policy carefully to find out what is excluded—not covered—by your policy. In addition to excluding specific perils, basic homeowners policies may also exclude:
Property and liability coverage for tenants, roomers, or boarders. Tenants can purchase renters insurance to cover their personal property and personal liability. See .
Business liability for damages resulting from home business activities and professional services, as well as injuries or property damage as a result of business activities. Talk to your insurance agent about separate business-related coverage.
You can expand your basic homeowners insurance policy by purchasing coverage for:
Reasonable repairs to prevent a further loss, such as repairing a patio that was damaged in a storm to prevent further erosion.
Lightning damage to trees, plants, shrubs and lawns.
Fire department service charges.
Floods (must be purchased through the federal National Flood Insurance Program).
To purchase flood insurance contact the National Flood Insurance Program at 888-379-9531 or go to www.floodsmart.gov. You can also speak to your insurance agent for guidance. Many agents are able to write flood policies through the National Flood Insurance Program. It may be that the holder of your mortgage requires you to have flood insurance.
What If Someone Gets Hurt on My Property?
If you or members of your household are hurt on your property, your medical expenses will typically be covered by your health insurance policy. They will not be covered by homeowners insurance.
Homeowners insurance provides basic liability coverage that protects you, and family members who are part of your household, if someone finds you legally responsible for injuries or damages, either on or off your property. You can be held legally liable for such events even though you didn't intend for them to happen. Liability coverage generally includes the following:
Legal defense costs
Payments for first aid to others at the scene of an accident
Payments for damage to someone else's property caused by you or your family (e.g., your child hits a baseball through your neighbor's window).
Payments for loss assessments resulting from your membership in a property association.
Note that bodily injury and property damage generally are not covered while you are operating a motor vehicle, airplane or boat. You need separate policies for these activities.
|Covered Item||Description/Explanation||Possible Exclusions|
|Excluded perils. Most frequently excluded are:|
Includes structures you own that are not attached to the house, such as storage sheds, fences and barns
Motor vehicles such as your lawn mower or motorized wheelchair are covered, but your automobile must be covered by a separate auto insurance policy
Earthquakes, except by a special endorsement
Damage by birds, rodents and insects
Water damage resulting from flood or sewer backup, except sewer backup covered by a special endorsement
Deliberate damage you do to your own or someone else’s property
Normal wear and tear
|Personal Property||Covers damage, theft or destruction of items such as televisions, stereos, furniture, etc.||Generally excludes same perils as dwelling coverage, and some items are subject to special limits (e.g., jewelry)|
|Additional Living Expenses||Covers the additional costs of living in case you have to move out of your home and live in a hotel or rental while it is being repaired for a covered loss|
|Basic Liability Insurance and Medical Payments to Others||Covers expenses in the event you are found to be legally responsible for damages or injuries to others, on or off your property||Damage done intentionally Business liability|
Coverage of some items of personal property is limited regardless of the cause of loss. Money (cash) is an example; typically, insurers will pay only up to $200 - regardless of whether the money is lost, stolen, burned or blown away.
The answer to that question depends upon your specific situation. Generally, it's wise to insure your home for 100 percent of its value (including its contents) with a replacement cost policy. Then, if it costs $100,000 to rebuild it from the ground up, that's how much your insurance company would pay to replace your home in the event of a total loss. Likewise, if shingles are blown off the roof or cabinets are damaged by fire, no depreciation would be deducted even if the damaged property is used and worn.
If you are insured for actual cash value—as opposed to replacement cost—you will pay less for your policy, but you may not receive enough money to replace damaged property. Instead, you will receive the amount your property is worth at the time of the loss-its cost minus depreciation for age and normal wear and tear. The depreciation applies to items such as kitchen cabinets, furnaces, appliances, and most household contents. It does not usually apply to the cost of removing and disposing of damaged materials, nor does it usually apply to those parts of a house that do not "wear out" such as foundations.
Some forms of property, such as fences, awnings, and swimming pools, are usually settled at actual cash value. So is personal property such as furniture, clothing, and appliances, unless you specifically purchase replacement cost insurance.
An inventory of your personal property will help you determine the approximate value of your possessions, and consequently, how much insurance you need, to cover your personal property. Make your inventory as thorough as possible (e.g., receipts, serial numbers of expensive equipment or appliances). Photograph or videotape each room in detail, if possible, and keep this visual record with your written inventory. Keep the completed inventory in a safe place outside your home, such as in a safe-deposit box, with a trusted relative or at your office. This record can help you prove the value of damaged or destroyed possessions, and may help you claim a tax deduction if you suffer a loss. The Insurance Information Institute offers free home inventory software that you can download at www.knowyourstuff.org.
Ask yourself the following questions when deciding how much insurance you need:
How much will it cost to replace my home today? You may need the help of a professional—ask a real estate appraiser, builder, or your insurance agent for an estimate. If you've made big improvements to your home, such as remodeling a kitchen or bathroom or building a deck, make sure your appraisal and your policy are updated to reflect the increased value.
Am I protected for inflation? Many companies automatically adjust policies for inflation; if so, your premiums will go up to cover the rising cost of replacement. Find out if your policy has an inflation-adjustment feature. If it does not, review your policy once a year to see if your coverage is adequate.
Am I planning any additions or renovations? Adding a family room or renovating a basement will increase the value of your home and the amount of coverage needed.
Is my personal property fully covered? If you have many valuable possessions or have recently acquired expensive items, such as televisions, computers, cameras, and musical instruments, you may need to buy additional coverage. Ask your insurance agent if you are covered for specific items of value. If not, consider purchasing extended coverage— sometimes called a floater or inland marine—to protect jewelry, furs, silver and other valuables.
Does my policy exclude coverage I may need? Some losses are specifically excluded from all policies, such as losses resulting from floods and earthquakes. If these are a danger in your area, consider obtaining additional or separate coverage.
What If I Live in an Apartment or Condominium?
If you own a condominium, the condominium association may pay for the insurance protection on your building, as well as liability protection if anyone is injured in common areas. Coverage will vary depending upon specific condominium rules and regulations. Some condominiums associations, for example, may insure only the shell of the building-leaving the insurance on all interior elements (e.g., drywall, bathroom fixtures) up to the individual owner. You may also need to buy your own, or additional, liability insurance. Read your association's policy and bylaws carefully to determine if you are adequately covered, then purchase additional protection if necessary.
If you rent an apartment or house, the owner's property and the owner's liability are covered by his or her insurance, but your property and liability are not. You may be held liable, as well, for damages to the owner's property done by you. You can purchase liability insurance as well as insurance for your personal property with a renter's policy.
What If I Rent Property to Others?
You should have a separate policy for dwellings and condos you rent to others. Insurance will protect the rental property as well as any of your personal belongings. Your tenants' personal property is not protected. You also need business liability and medical coverage for anyone who might get hurt on your property as a result of your property or action. Ask your insurance agent for details.
Get at least three quotes from different insurance companies and compare the policies carefully.
Choose a higher deductible. Your deductible is the portion of each covered loss you pay before your insurance company will begin paying for the loss. For example, if you have a $700 bill for having the brickwork on your chimney repaired after a windstorm, and your deductible is $250, you will pay $250 and your insurance company will pay the remaining $450. The higher your deductible, the lower your insurance premiums. When choosing a deductible amount, be sure to consider how much you can afford to pay up front (i.e., your deductible) in the event of an unexpected loss.
Reduce your risks. Many insurance companies offer discounts for safety features such as automatic sprinkler systems, central burglar and fire alarms, dead bolt locks, smoke detectors, and fire extinguishers. Ask your insurance agent about discounts available. Then, enhance your safety and save money by updating the safety/security items in your home. Communities with Neighborhood Watch programs often have lower insurance rates. Check with your local police department for information on how you can get involved your community’s program.
Ask about multiple policy discounts. Some insurance companies offer a discount if you carry more than one type of policy with the company (e.g., homeowners and auto insurance).
Ask if any other discounts are available. For example, if you are at least 55 years old, or if you have been insured with the same insurer for several years, you may qualify for lower rates.
Insure your house, not the land. It is your house, not your land, that is at risk from the perils covered in your policy. Even if your house were to burn to the ground, the land would still be there, so when deciding how much insurance to buy, don’t figure in the value of the land.
Ask if you are eligible for group coverage, which is sometimes available through alumni associations, employers, and business associations.
The Insurance Information Institute offers free, informational booklets, covering such topics as:
Am I Covered?
Insurance for Your House and Personal Possessions
How to File an Insurance Claim
Settling Insurance Claims After a Disaster
Twelve Ways to Lower Your Homeowners Insurance Costs
You can download the booklets at www.iii.org. To obtain a free copy of a brochure, send a self-addressed stamped envelope to:
Insurance Information Institute
110 William Street, 24th Floor
New York, NY 10038
Insurance Information Institution
The Insurance Information Institute offers free, informational booklets and online information. You may also download The Insurance Information Institute’s free Home Inventory Software at www.knowyourstuff.org
National Association of Insurance Commissioners
To get information about insurance in your state, contact your state’s Insurance Department. You can access all 50 state Insurance Department websites from this link.
National Flood Insurance Program
The website of the National Flood Insurance Program has specific information on how to obtain flood insurance as well as how to decide if you need it.
MetLife offers a free Personal Property Inventory resource, as well as useful home safety tips. MetLife can also assist you with your home insurance needs, whether you own or rent a house, condo or mobile home.
For information about other Life Advice topics, go to www.metlife.com/lifeadvice.