Do You Need Homeowners Insurance? How You Can Protect Your Home And Yourself

Buying a home is exciting, but it comes with many expenses you didn’t anticipate – one of these is homeowners insurance. Homeowners insurance protects you from financial loss if your home is damaged or broken into.

But do you need homeowners insurance, or can you skip on this policy? It’s important to understand how homeowners insurance works, and how it protects you, your family and your home.

What Homeowners Insurance Provides

Buying a house is a huge investment, so you want to protect yourself from financial loss. One of the best ways to do that is by purchasing homeowners insurance. Homeowners insurance will cover the cost to repair or rebuild your home if it’s damaged in a storm or natural disaster.

It will also cover the costs if your home is broken into or vandalized. If you have a freestanding garage or shed located on your property, those items may be covered by your homeowners insurance as well.

Homeowners insurance also provides liability protection if someone is injured on your property. It will cover the other person’s medical costs as well as your legal expenses if that person tries to sue you.

Insurance policies are highly customizable, and your exact coverage will depend on your insurance carrier and the policy you choose. It’s important to shop around for homeowners insurance so you find the policy that’s right for you.

Is Homeowners Insurance Required?

When you buy a house, there’s no legal requirement to purchase homeowners insurance. But if you take out a mortgage, your lender will require you to have homeowners insurance.

Advantages To Having Homeowners Insurance

Even if homeowners insurance wasn’t required by your lender, it’s still an important way to protect yourself financially. The following are some of the biggest advantages of paying for homeowners insurance:

• It protects your home: Homeowners insurance will cover the cost to repair or rebuild your home if it’s damaged in a storm, fire or natural disaster.
• It protects your belongings: In addition to covering the main structure of your home, homeowners insurance protects your belongings. This includes your appliances, furniture, electronics and other belongings.
• It protects you from legal costs: Homeowners insurance also provides liability coverage, so it protects you from lawsuits if someone gets hurt on your property.
• It covers additional living expenses: If you have to temporarily move out of your home, homeowners insurance will cover your hotel stay and meals while your home is being rebuilt.

Disadvantages To Having Homeowners Insurance

Here are some of the downsides that come with homeowners insurance:

• It doesn’t cover everything: Homeowners insurance covers most damages to your home, but it doesn’t cover everything. For instance, flooding isn’t usually included so you may have to purchase a separate policy if you live in a flood zone.
• The cost can be expensive: Homeowners insurance can be costly, especially if you have high coverage limits. That’s why it’s important to shop around among different insurance companies.
• Possibility of hidden terms and conditions: Homeowners insurance may come with additional policy terms and conditions that you may be unaware of. For instance, some policies exclude certain dog breeds from coverage.

Coverage Options You Can Add To Your Homeowners Insurance Policy

Here are some of the primary coverage options you can add to your homeowners insurance policy.

Dwelling

Dwelling coverage covers the structure of your home and any installed fixtures and permanently attached appliances. It’s a good idea to choose enough coverage to rebuild your home at today’s prices.

Other Structures

Other structures coverage includes additional structures located on your property. For instance, if you have an attached garage, fence or gazebo, this coverage would protect them from damage.

Personal Property

Personal property coverage pays for your belongings if they’re lost, stolen or damaged. If you have many high-value items, you may want to pay for an additional policy rider.

Temporary Living Expenses

If your home is damaged to the point where it’s uninhabitable, this coverage will pay for your temporary living expenses. For instance, it would cover the cost of a hotel and meals while your home is being repaired or rebuilt.

Personal Liability

Personal liability coverage protects you from lawsuits if someone is injured on your property. It could also cover you if someone else’s property is damaged at your home.

Medical Payments

If someone hurts themselves on your property and needs to go to the hospital, this coverage will pay for their medical expenses. And this coverage kicks in regardless of who’s at fault for the injury.

What Isn’t Covered By Homeowners Insurance

Here are some common exclusions in a standard home insurance policy:

• Floods
• Water damage from drain or sewer backups
• Earthquakes, landslides and sinkholes
• Termites, vermin or other pest infestations
• Fungus or mold
• Lack of maintenance
• Power failure
• Nuclear accidents
• Government action, including war

How Homeowners Insurance Works

There are several different types of homeowners insurance, depending on your home and the level of coverage you need. As you’re shopping around for homeowners insurance, here are some terms to familiarize yourself with.

Actual Cash Value

The actual cash value is the money needed to fix your home after deducting for depreciation. In other words, the actual cash value is based on what your home and belongings are currently worth, not how much you paid for them.

Replacement Cost Value

The replacement cost value is how much money is needed to repair or replace your home. Since depreciation isn’t factored in, you would be able to repair your home at its original value.

Extended Replacement Cost Value

The extended replacement cost value extends your dwelling coverage by 10% to 50% of the cost to rebuild your home. It can help you avoid paying out of pocket if the costs of material and labor have gone up in your area.

Guaranteed Replacement Cost Value

The guaranteed replacement cost value covers the cost to repair or rebuild your home, even if it exceeds your policy limit. With this type of coverage, you don’t have to worry about being underinsured. 

Limits And Deductibles

A limit is the maximum amount your insurance company will pay to repair or replace your home and belongings. Your deductible is the fixed amount you’ll pay before your insurance coverage kicks in.

If you choose a high deductible, your monthly insurance premiums will likely be lower. A lower deductible will result in higher insurance premiums, but you’ll have less to pay if you need to file an insurance claim.

What Happens If You Go Without Homeowners Insurance?

Going without homeowners insurance violates the terms of your mortgage agreement. If you cancel your homeowners insurance, your insurance company will notify your lender. Your lender could either force you into a more expensive policy or send your loan into default.

FAQs On Homeowners Insurance

Listed below are answers to some additional questions you may have about homeowners insurance.

Do I need homeowners insurance to close on my house?

Yes, before closing on your home you’ll need to purchase homeowners insurance. Your lender will require you to have homeowners insurance until the mortgage is paid in full.

What happens if my home is damaged and I don’t have homeowners insurance?

If your home is damaged and you don’t have homeowners insurance, you’re responsible for covering the costs yourself.

How are homeowners insurance rates determined?

Many different factors influence the cost of homeowners insurance. The replacement cost of your home, coverage limits, deductible and any additional risk factors will all influence your monthly premiums.

How much homeowners insurance do I need?

Most policies come with a minimum of $100,000 worth of liability insurance, but most people need more than that. It’s a good idea to speak to an insurance agent to determine your coverage needs.

Do I need homeowners insurance for a rental property?

Yes, you need homeowners insurance to protect your investment. It’s also a good idea to encourage your tenants to purchase rental insurance to protect their belongings.

The Bottom Line: Homeowners Insurance Provides Peace Of Mind

There’s no law requiring homeowners insurance, but it will be a condition of your mortgage. Homeowners insurance protects your home from damage and can give you peace of mind. If you’re looking to buy a home in the next year, you can start the mortgage approval process today.