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Guide to Shopping For Homeowners Insurance Coverage

A lot that goes into learning how to shop for home insurance, but once you understand the details, you can make sure you get the coverage you need and make some adjustments to help control the overall cost.

Guide to Shopping For Homeowners Insurance Coverage

Purchasing a home is a big investment, so it makes sense to protect your property. A homeowners insurance policy can help cover the costs of certain types of property damage, as well as other issues like theft or vandalism. Some policies can also provide personal liability coverage, offering protection if someone is injured on your property.

While the cost of a homeowners insurance policy can be significant, when you consider the potential cost of home damage, it’s easy to see the potential benefits. For example, storm damage repairs may run you anywhere from $350 to $50,000, and the average cost of lightning-related damage is around $28,885. For many homeowners, paying these costs out of pocket could have a significant financial impact. However, with a home insurance policy in place, you may be responsible for only a fraction of these costs. Learn how to narrow down your options so you can find a policy that suits your particular needs.

Narrow Your Home Insurance Policy Options

When you begin to shop for homeowners insurance, it’s important to understand the details of each policy, including the coverage, exclusions, and costs. The term “coverage” refers to the financial protection the policy provides against loss. Meanwhile, “exclusions” outline the specific types of loss or damage the policy does not cover. 

The cost refers to the premium you pay the insurance company each year. These premiums may be made on a monthly, quarterly, semiannual, or annual basis. Home insurance policies also have deductibles and limitations that can impact your out-of-pocket costs if you have to make a claim.

What Perils Do You Need Covered?

A peril is an insurance term used to describe events or circumstances that can cause property damage. Home insurance policies typically either cover specific types of perils or provide a list of perils they do not cover. When you shop for homeowners insurance, understanding which perils each policy covers can help you compare your options. Since protection against perils is one of the primary reasons for having home insurance, this can be a critical factor in choosing the right policy for your needs. There are two primary types of peril policies: open and named.

Open Perils

Open peril policies generally cover a wide range of risks. Rather than defining the perils that are covered, these policies include a list of perils that are excluded. Generally, if a peril is not specifically excluded, the policy helps cover the cost of resulting damage. Open peril policies may also exclude property damage caused by unusual circumstances and/or normal wear and tear. 

Named Perils

Unlike open peril policies, named peril policies provide a list of perils that are covered. By default, perils that are not listed are not covered. Named peril policies typically cost less than open peril policies, but they offer limited protection. For example, if you have a named peril policy that covers fires and windstorms, damage from strong gusts of wind may be covered, but the damage that occurs from falling objects or hail may not.

Some of the named perils that are typically covered by standard homeowners insurance policies include:

  • Fire and smoke
  • Windstorms
  • Lightning strikes
  • Theft
  • Sudden internal water damage
  • Falling objects
  • Weight of ice or snow

If you’re purchasing a named perils policy, be sure to carefully review the covered perils as each policy’s coverage may be different.

Common Exclusions and Your Options

An exclusion is a peril that is specifically not covered by your homeowners insurance policy. Both open and named peril policies typically have a list of excluded perils. This may include damage from circumstances such as:

  • Flooding
  • Earthquakes
  • Pests or vermin
  • Normal wear and tear
  • Lack of maintenance

If you live in an area where perils like floods or earthquakes are a concern, you may be able to purchase coverage for these circumstances through a separate policy.

How Much Coverage Do You Need?

As you shop for home insurance, it’s important to consider the amount of coverage you actually need. This can vary based on the replacement cost of your home, the value of your personal property, and your net worth. To determine how much coverage you need, begin by understanding the different parts of a home insurance policy and what each part covers. This can help you choose the proper coverage limits for your specific circumstances.

Dwelling Coverage

Dwelling coverage, also called Coverage A, provides protection for your house and any attached structures, like your deck, garage, or fences. Structures that are not attached to your home — like a gazebo, detached garage, or tool shed — are protected under a similar coverage called Other Structures coverage.

Dwelling coverage can help pay the costs to repair or rebuild covered structures following damage caused by a covered peril. When determining how much coverage you need, consider the age of your home, local construction costs, and any upgrades or unique features you’ve added. If your home has old or hard-to-replace features, this can also increase the amount of coverage you need.

Dwelling coverage may pay for damage caused by common perils, such as a strong windstorm or a lightning strike, but it may not offer coverage if the damage occurred as a result of an excluded peril, like flooding, earthquakes, sewer backups, or lack of maintenance.

Personal Property Coverage

Personal property coverage, also called Coverage C, can help cover the cost of your personal possessions if they are damaged, stolen, or vandalized. This may include your furniture, clothing, appliances, electronics, sports equipment, and other items.

Some home insurance policies also provide off-premises coverage, meaning that your items are covered anywhere in the world, not just in your home. High-value items like jewelry, artwork, and furs may have coverage limitations, and some items and/or perils may also be excluded.

When determining how much coverage you need, ask yourself, “If I lost everything, how much would it cost to replace it?” To reach an accurate estimate, it may be helpful to create an inventory of all your possessions, then use this information to create an estimate of their total value. If you own rare or expensive items, you may want to talk to your insurance agent about whether you need additional coverage.

Personal Liability Coverage

Once you’re comfortable that your home and possessions are properly insured, the next step is to consider your liability coverage. This portion of a home insurance policy can help protect you against the cost of medical bills or lawsuits if you accidentally injure someone, even if it occurs off your property. This may also cover injuries or damage caused by your pets, such as if your dog destroyed someone’s expensive landscaping.

The liability portion of your homeowners insurance policy can help pay the cost of defending yourself in court and any awards that are given to the injured party, up to your coverage limits. However, it typically does not provide coverage for injuries to you or anyone else who lives in the home.  It also may not cover injuries or damage caused by intentional actions or that result from running a business out of your home.

You may find that you need more liability coverage if you frequently have visitors to your home or a high amount of traffic on your property. Having a pet that could bite, scratch, or knock someone down could also increase your potential liability. If you have a high net worth, having additional liability coverage can also help protect you from losing your assets as a result of a lawsuit.

Loss of Use Coverage

If your home were destroyed, it’s important to consider how long it would take to rebuild it and what you would do in the meantime. Loss of use coverage can help pay for the extra expenses you incur while you’re unable to use your home, as long as the loss of use is caused by a covered peril.

For example, if there’s a fire in your home and you have to live in a hotel for several months, this coverage may help pay for the extra costs associated with staying in a hotel, eating out, going to the laundromat, and paying for parking. Note that this typically covers costs above what you usually spend. For example, if you normally spend $150 per week on groceries but spend $350 per week eating out because you were displaced, the coverage typically applies to the additional $200 rather than the full $350.

When determining how much coverage you need, consider the average cost for you to maintain your current lifestyle without access to your home. Also, note that there are limits to loss of use coverage. It’s important to check with your insurance provider to confirm what can be included and make sure you understand any exclusions.

Add More Coverage With Riders

While the coverages listed above provide protection in many scenarios, they may not cover everything. That’s where riders come in. These optional add-ons can increase your coverage limits, expand coverage to certain types of property, or extend your coverage to protect you against additional perils.

Some common home insurance riders include:

  • Water backup coverage: This rider helps pay for repairs related to damage caused by a backed-up drain or sump pump.
  • Scheduled personal property coverage: This rider can provide coverage for valuables, like jewelry, up to the appraised value. It may also cover loss or misplacement.
  • Building code coverage: This rider covers the cost of updates needed to get your home into compliance with current building codes while repairing covered damage.
  • Business property coverage: This rider helps protect business-related items stored in your home, such as inventory you are planning to sell.
  • Identity theft restoration coverage: This rider helps reimburse costs incurred after identity theft, such as legal fees, costs to mail documents, and lost wages.

What Costs Can You Afford?

Now that you have an idea of the types of perils you need to cover and the coverage amounts necessary to protect your home, it’s time to start looking into the cost of coverage. The premium you pay for your policy depends on several factors, including the deductible you choose, your policy limits, and your coverage amounts. Here’s a closer look at each price factor.

Premiums

The premium is the amount of money you pay your insurer each year in exchange for the coverage they offer. Some factors that impact the cost of premiums include your credit history, claims history, marital status, and the age and location of your home. The deductibles, limits, and coverage you choose can also impact your premiums. When you shop home insurance coverage, it’s sometimes helpful to try adjusting these numbers to see if you can strike a balance between the cost of your policy and your coverage needs. 

Deductibles

Your deductible is the amount of money you pay out of pocket before your insurance company pays a claim, though it does not apply to liability coverage. While this can impact your total costs, you do not pay a deductible unless you make a claim. Having a higher deductible can help keep your premiums low, while lower deductibles typically translate into higher premium costs.

If you have plenty of cash on hand to cover out-of-pocket expenses, it may make sense to choose a higher deductible. This could help keep your premiums low each year and there’s no deductible payment unless you make a claim. On the other hand, if a large unexpected expense would have a serious impact on your financial health, a lower deductible can help limit this risk. 

Home Insurance Limits

The coverage limit on your home insurance policy is the maximum amount the insurer pays for a covered loss. Generally, the higher your limits, the higher you can expect your premiums to be. 

Some homeowners find that they need higher limits to provide them with enough coverage. This may be the case if you have a lot of high-value personal property or an upscale home with expensive features. If you have a high net worth or are concerned about your risk of being sued for personal liability, you may also consider choosing higher coverage limits for this portion of your policy.

Shop Homeowners Insurance Quotes and Compare

Once you’ve narrowed down your policy options and decided on the coverage you need, you can start requesting quotes and comparing insurers. You can do this by contacting each insurance company separately or save time by using a service that allows you to gather multiple quotes at once.

When reviewing home insurance policy quotes, be sure to check each of the factors listed above, including the coverage, deductibles, limits, and exclusions. If there’s a major price difference between seemingly similar policies, it’s worth the effort to dig a bit deeper and find out why. This can help ensure the options you’re comparing are truly comparable. 

Also, while the factors previously mentioned are important, a company’s reputation holds some weight as well. Remember that if you need to make a claim or adjust your policy, the company’s customer service can have a significant impact on your experience. You can research an insurer’s reputation by checking out their J.D. Power ratings for overall satisfaction, looking at their financial strength ratings, and reading customer reviews.

Purchase Your Policy and Get Coverage

The final step is to purchase your policy and receive coverage. Your coverage typically begins after you make your first premium payment. When you receive your policy, take the time to review it and make sure the coverage, deductibles, and limits are correct. Then, keep it in a safe place so you can easily retrieve it if you need to make a claim.