How Does Homeowners Insurance Work?
After looking at dozens of houses you found a property you love. You’ve managed to come up with a down payment, get approved by a lender, and started wrapping your knick knacks in newspaper. Now you need to find a homeowners insurance policy that meets your needs, but how do you know if a policy is the right one for you?
For most people, your home is your biggest financial investment. Having homeowners insurance is an important part of owning a home because it helps protect you from suffering a catastrophic loss. But what exactly is homeowners insurance, and how do you know if you have the right coverage?
What does a homeowners insurance policy cover?
A typical homeowners insurance policy breaks down into several parts, including:
- Dwelling coverage: This is the portion of your policy that covers the physical structure of your home. Typically, dwelling coverage is the most expensive portion of your insurance policy.
- Other structures coverage: This covers the other structures on your property, including fences, driveways, detached garages, swimming pools, etc.
- Personal property coverage: This covers your belongings, both when they are in your home and when they are elsewhere. If your laptop were stolen out of your car or a fire in a storage unit destroyed your things, this is the portion of your policy that would cover those items. There are limits to the amount of coverage provided for some items, so you may need to purchase add-on coverage or a rider for especially valuable things.
- Loss of use coverage: This covers you in case your home is damaged to a point where you cannot live in it. This covers the cost of temporary housing while your property is being repaired.
- Personal liability coverage: This is the portion of your policy that protects you if someone is injured on your property or your property damages someone else’s property. If your tree falls and destroys your neighbor’s fence, this is the part of your policy that would pay for that damage.
- Medical coverage: Similar to personal liability coverage, medical coverage pays for medical bills when someone is injured on your property. This is typically for smaller claims, usually somewhere between $1,000 and $10,000.
Because homeowners insurance is specific to your situation, there is no “standard” price for a homeowners insurance policy. For example, two people insuring the same basic home in two different places could pay wildly different amounts for insurance. There are many things that can impact your homeowners insurance rates, including:
- The age of your home: Is your home ten years old? 50 years old? 200 years old? When your home was built can impact your insurance premiums.
- Building materials and safety features: Is your home brick? Wood? Covered in aluminum siding? This will all affect your insurance costs.
- Location: Location isn’t just about states or ZIP codes, it also considers things like the nearest fire department or whether or not you’re in a flood zone.
- Pools, trampolines, and more: If you have other structures on your property that possibly present a liability risk such as a pool, trampoline, hot tub, etc. you will probably see an increase in your insurance premium.
- Luxury items: Items that require an add-on to your policy will increase your rates, including expensive art, jewelry, weapons, and collections of all kinds.
- Credit rating: Your credit history can impact your insurance rates, so working to raise your credit rate can also save you money on your insurance.
Your homeowners insurance coverage should be as unique as you are, otherwise it isn’t going to meet your needs. It is important to get multiple quotes from different homeowners insurance companies to make sure you are getting the best rate, but comparing plans based on rate alone is not the most effective way to choose the best homeowners insurance company for you.
There are lots of features included in each insurance plan that could impact whether or not the plan meets your needs, including coverage levels, premium, deductible, and so much more. No matter how much experience you have with insurance, it can be helpful to have an expert review your policy and answer any questions you may have. Our insurance experts here at Goosehead Insurance are available to help you find the perfect plan for you.
How much home insurance do I need?
There are many factors to consider when thinking about how much insurance you need. Do you have a pricey wine collection that needs a separate insurance rider? Does your house come with a pool or hot tub? Do you need additional coverage for things like identity theft or water backup?
Knowing exactly what you need in a policy can help you decide how much coverage is appropriate in your situation. Sometimes you can add additional coverage or increase your current coverage limits for just a few dollars more on your annual premium, so it is worth it to discuss all of your options with an insurance expert. There are multiple homeowners insurance calculators available online to help point you in the right direction, or you can work with an expert to help you figure out exactly how much insurance you need.
How can I lower my home insurance rates?
Just because you need insurance coverage doesn’t mean you need to pay a fortune to get it. There are lots of ways you can save money on your insurance, including:
- Get multiple quotes: Comparing quotes from multiple insurance companies is the only way to make sure you aren’t missing out on a better deal with another company.
- Bundle your policies: Using one insurance company for all of your insurance policies (home, auto, etc.) is an excellent way to earn a sizable discount on your coverage. Many insurance carriers even offer a bundle discount if you carry multiple lines of business through Goosehead Insurance, allowing you to choose the best policies for you and still maintain the discount.
- Look for discounts: Many companies offer a variety of discounts. If you are a veteran, a senior citizen, or a student you may qualify for a discount, while certain home features such as dead bolt locks or recently modernized plumbing or electrical can sometimes earn you a discount as well.
- Add safety features to your home: Whether you are talking about storm windows or a home security system, protecting your property could potentially be worth a discount to your insurance company.
- Increase your deductibles: You can reduce your annual premiums if you are willing to shoulder a little more of the cost in the event of a claim. Going from a $500 deductible to $1,000 or more can help save you a pretty penny on your insurance. Just make sure you have the money to pay that higher deductible before you make the change to your policy.
Fun Fact: The Philadelphia Contributionship, co-founded by Ben Franklin in 1752, was the first insurance company in the United States.
The contents of this article are for informational purposes only. You should not act or refrain from acting based on this information without first consulting a Goosehead licensed agent at email@example.com. We disclaim all liability for actions taken or not taken by you based on the contents of this article which is provided "as is." Goosehead makes no representation that this content is error-free.