A home is more than walls and a roof. It’s more than countertops and carpet, more than plumbing and electric. A home is security. A home is where you, your spouse and your children (whether they have two legs or four) sleep at night. It’s where you eat supper, carve Jack-o’-lanterns, blow out birthday candles and nap on lazy Sunday afternoons. The question of whether to buy homeowner’s insurance is not simply a question of property value; it’s a question of protecting what is important to you and your family.
This simple guide will answer the question of whether you should buy homeowner’s insurance and where to begin shopping.
What does insurance cover?
To begin to understand the value of homeowner’s insurance, you should first know what it covers. Homeowner’s insurance is available in several standard forms:
- HO-1 (Basic Form) Most states no longer offer it, but in some places you can get a basic, bare-bones policy that covers only the “perils” (forces of destruction) explicitly stated. Generally, a basic form will include protection against fire, lightning, wind, hail, smoke, volcanic eruptions, glass breakage, damage from vehicles, theft, vandalism, malicious mischief, riots, civil commotion and explosions. It will also include liability insurance in the event the homeowner is held responsible for an accident on the property. Protection against floods and earthquakes is not included.
- HO-2 (Broad Form) In addition to the perils listed in HO-1, the Broad Form adds protections against collapse, weight of snow and ice, freezing of plumbing / heating / appliances, falling objects, water leakage, accidental damage of water heating systems and accidental damage to devices from artificially generated electrical currents. HO-2 covers not only the house but also other building on the property and personal items (furniture, electronics, etc.).
- HO-3 (Special Form) The most common form of homeowner’s insurance, HO-3 provides protection against all damage not specifically excluded. The usual exemptions are floods, earthquakes, water seepage, war and nuclear accidents.
- HO-5 (Premier Policy) This is the most comprehensive protection plan available. It operates under an “open perils policy,” meaning you are insured against all damages to your home and personal property unless the offending peril is specifically listed as an exemption. Your exemption list will include perils like power failure, mold, pests and neglect.
There are several other types of homeowner’s insurance as well, including options for renters (HO-4), condominium owners (HO-6) and older homes (HO-8). You can also opt for additional coverage against perils like floods and earthquakes by purchasing a separate policy on top of your main homeowner’s insurance.
Do you need the protection?
For most homeowners, the answer is yes. Disaster can strike at any time. You have to ask yourself “what if?” What if there’s a fire? What if there’s a break-in? What if a visitor slips on your kitchen floor? Accidents and acts of natures can set you back hundreds of thousands of dollars. Rebuilding your life is not easy. Don’t get caught without protection of your property and possessions.
If you’ve taken out a home loan, your lender probably requires you to have a policy anyway. If your house goes uninsured, your lender will likely have your home insured with minimum coverage and a high premium (that you’ll have to pay, of course). Do yourself a favor and shop for your own.
How to shop for homeowner’s insurance
You have a lot of options. Use your freedom as a consumer to shop around and find the best price for the coverage you require.
The first step is to determine how much coverage you need. Home insurance is valued at the price it would cost to rebuild the house (not the market value). You can try using a website like AccuCoverage.com to approximate the cost of rebuilding, but it may be easier to work with an insurance agent to determine a number.
Most people will opt for an HO-3 plan for protection against a wide range of perils. This is a good foundation but isn’t always be enough. If, for example, you have invested a lot of money in rare art pieces, you may want to obtain additional coverage. A typical HO-3 policy will only cover a percentage (usually 75%) of your possessions and may have even lower coverage on certain high-risk items (like jewelry).
Once you’ve sufficiently assessed your needs, start looking at quotes. Research is the key. Find an independent agent to provide quotes from several different companies. Additionally, obtain your own quotes from some of the bigger insurance agencies that don’t sell through independent agents. To get an accurate comparison, be sure to provide the same information and request the same coverage from each company.
Make sure you always inquire about discounts. You may catch a break if you’ve made improvements on your house, added disaster-proofing or installed a home security system. You’ll often receive a discount if you insure your home with the same company that insures your car. You can also lower your premium by opting for higher deductibles, but that’s a balancing act you’ll need to discuss with your agent and your savings account.