Do I Need To Insure My House?

Yes, homeowners insurance is one of the most important purchases to make when buying a home. In fact, there's no situation in which foregoing homeowners insurance is a good option. It's necessary to have in order to protect your home in the event of unforeseen disasters and accidents, and can even help keep you from losing your house.

Why is it Necessary?

Homeowners insurance covers you from damage caused by fires, storms, theft, and other disasters. It protects you from the loss of your home and assets. Without it, you could be left without a place to live after an emergency.

It also protects you if someone is injured in your home. If someone slips on your floor and decides to sue you for injuries, your homeowners insurance will kick in and cover your legal costs. It’ll also pay for that person’s medical costs in the event you’re found liable.

Most mortgage companies require you to purchase homeowners insurance before they’ll issue a loan, though most state laws don’t require it. Even if you’re given the ability to opt out of homeowners insurance, it’s not recommended you do so.

How the Deductible Works

Insurance companies often allow homeowners to choose a premium they’re certain they can pay. The Insurance Information Institute claims the average annual premium in 2012 was $1,034, but homeowners insurance costs vary depending on where you live.

Deductibles on homeowners insurance typically range between $500 and $1,000, depending on the amount of coverage. Most insurers suggest choosing the highest deductible you can afford in order to receive a lower premium.

They’ll use these to determine how much money you’ll need to start your escrow account. These four factors are sometimes referred to as PITI for principal, interest, taxes and insurance.

Remember, the deductible is the amount you’re willing or able to pay to cover the cost of repairs and damages before your insurance kicks in. Some people make the mistake of assuming the lowest deductible is the best deal.

Using your homeowners insurance to cover every bit of damage to your home is not recommended. Your insurance company will likely pass on the costs of repairs to you in the form of a higher premium each time you file a claim. The lower your deductible, the more your insurance has to pay and the more they’ll put back on you in the long term.

…homeowners insurance is one of the most important purchases to make when buying a home.

The Types of Coverage

Before purchasing insurance, it’s important to get an estimate on the value of your home and what you have inside the home. You’ll want to buy enough coverage to rebuild your home and replace lost possessions in the event of total loss.

There are different types of coverage available.

  • Guaranteed Replacement Cost Coverage insures your home is rebuilt no matter how high the cost of repairs, though this type of coverage is rare.
  • Extended Replacement Coverage typically restricts the amount you’re paid to 125 percent of the home’s value. If inflation increases by more than 25 percent since your home was constructed, this coverage may not cover the entire cost of rebuilding it.
  • Inflation Guarantee is an extra feature that keeps your home’s insured value in line with the market’s current value at all times. This means that, no matter how much your home value depreciates in the years since construction, your insurance will cover the cost to replace it in full.

All of your possessions won’t be covered under standard homeowners insurance policies. You can purchase replacement coverage for lost valuables that will add a nominal amount to your monthly insurance payments. Doing so will insure you receive the amount necessary to replace the item you lost, regardless of the actual cash value (ACV) it’s estimated to have.

Some insurers offer supplemental liability in addition to your normal liability coverage policy. Supplemental liability can increase your protection in case you’re worried that your policy’s existing liability limit is too low. Liability coverage typically caps out at around $300,000 and supplemental liability can increase that limit to above $1 million.

Insurance For Renting Out Your Home

If you plan on using your home as a rental unit, you should consider purchasing additional renter’s insurance on top of your homeowners insurance.

Short-term rentals, usually lasting less than six months, are sometimes included in the original insurance policy. If not, you’ll need to add an endorsement to your insurance policy to cover your renters. In some instances you might be required to purchase a separate business insurance policy when using the house as a hostel or hotel.

You’ll need to purchase a landlord or rental dwelling policy for long-term rentals lasting longer than six months. This policy provides coverage for any damage incurred on the premises from weather, fire, or theft and helps you replace possessions. Landlord policies also cover liability for renters’ injuries on the property and can sometimes include reimbursement for lost rental income due to damage and the time it takes to repair.

If you’re in the market for home insurance, agents will be happy to help you find the policy that’s perfect for your circumstance. Let them help you compare a variety of policies to ensure you get the coverage that you need for a price that fits your budget.

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