Keeping You and Your Investment Covered: A First-Time Homeowners Guide to Insurance

Buying homeowners insurance isn’t a requirement by law, but the chances are that your property is one of your most valuable investments, so it makes sense to do what you can to keep it safe and protected. Even if you’re lucky enough to not require a mortgage, homeowners insurance is still a good idea as it serves to protect you financially.

How Does Homeowners Insurance Protect My Home?

There are a few different types of homeowners insurance policies but generally speaking, the function of this insurance is to protect your home in the following ways:

• Personal liability: This covers incidents where you could be held liable by another party for injury or damages that occur on or with regards to your property. For example, if your dog bites someone or if someone injures themselves on your property, this will ensure that your legal costs and the other party’s medical expenses are covered.
• Your belongings: The contents of your home as well as your personal belongings can be protected through homeowners insurance, whether they are on your property or not. For example, your furniture is covered in the event of a fire, but so is your jewelry if it is lost in a mugging or while on holiday.
• The structure and property itself: Insurance will have you covered in the event that your home or property needs repairs in the event of flooding, a fire, accidents and other destructive events, natural or man-made. The property will also be covered in the event that it needs to be totally rebuilt if destroyed in the event.

What Exactly Does Homeowners Insurance Cover?

We’ve all heard terrible stories of homeowners who thought they were covered by insurance only to find out that they have to carry high property repair costs themselves. The reality is that it is up to property owners to make sure that they know exactly what they are covered for, the extend=t of their coverage and what is excluded, as policies can differ.

The two most common types of homeowners insurance policies are the HO-2 and HO-3.

HO-2 coverage is the more basic (and therefore often more affordable) policy and provides coverage according to “named peril” basis. This means that a loss has to be specifically mentioned in the policy in order to be covered by the insurance provider. These perils include lightning, fire, smoke, theft, vandalism, windstorms, hail, vehicle and aircraft damage, weight of snow/ice/sleet, freezing of household systems, damage from artificially generated electric currents, riots, explosions, falling objects, overflow or discharge of water, and the sudden cracking/tearing/bulging of the home.

HO-3 coverage is more comprehensive and therefor usually costlier. These are called “open peril” policies as they provide coverage for all perils other than those specifically excluded by the insurance provider. Although these are open peril policies, personal property is still only covered under a named peril basis.

Even more comprehensive coverage can be provided in the form of HO-4 and HO-5 policies, HO-5 providing the broadest level of protection to both your home and your personal belongings. Again, anything your provider specifically excludes in the policy will not be covered.

What Does Homeowners Insurance Not Cover?

Unfortunately, there are always exclusions to homeowners insurance policies, and if you want your home and property insured against these exclusions, you’ll have to invest in specific, separate policies.

Typically, exclusions include damage from flooding, nuclear hazards, wear and tear, mold, flooding, earthquakes, landslides, infestation and government action. If you live in an area prone to earthquakes or flooding, it makes sense to invest in an additional policy. Similarly, if your home is in a high-risk area for certain types of damage, you may want to get additional coverage to increase your protection to a higher value so that you won’t have to pay in at all.

Popular Types of Optional Coverage

Additional insurance that homeowners often choose make use of to enhance their coverage include:

• Scheduled personal property endorsement: This is ideal for covering high-value or irreplaceable items like jewelry, antiques, fine art, valuable heirlooms or collectable vehicles.
• Enhanced dwelling protection: This is additional coverage that is important if your regular coverage isn’t high enough to cover the value of the structure of your home. This means that you won’t have to pay in if you need to rebuild or repair your home.
• Water backup coverage: This ensures that your home and belongings are protected in the event of a burst pipe, major leak or any other water damage resulting from your home’s plumbing.

The Difference Between Replacement Cost and Actual Cash Value

One key factor in determining the cost and coverage of your property insurance is the choice between replacement cost and actual cash value. If you choose replacement cost, then your policy may be more expensive, but you will be covered fully when you have to replace any items covered within the policy. Choosing the actual cash value option means that your policy will only cover the value of those items at the time that they were lost, damaged or stolen. This makes the policy more affordable but will mean you’ll have to pay in to get new replacement items.

Buying a home is a big step in anyone’s life and the most important thing is that you get to enjoy your home for many years to come – and that means making sure that your investment is properly protected. We wish you the very best for your new home!