Discussing home insurance doesn’t rank with the most exciting moments of purchasing a house, but it’s one of the most important purchases a buyer will make.
Homeowners’ insurance protects one of the most significant investments most buyers will make in their lifetime.
This article will provide all the information you need about homeowners’ insurance and how to pick the right one for you.
What is home insurance, and what does it cover?
Home insurance helps the buyer when the worst events occur. The insurance lets you repair or replace your home after damaging or catastrophic events. In addition, the policy can help pay the costs of damage from fire, theft, a severe storm, or other events covered in the policy. These are called “perils.” While storms involving wind and hail are covered, be aware that if your property is in an area that receives earthquakes or flooding, separate insurance needs to be purchased.
Coverage for living expenses will pay if a homeowner is forced to leave due to a covered condition. These typically include events such as fires, tornadoes, or other immediate or imminent hazards because of which local authorities bar you from your neighborhood.
The insurance covers the home’s structure and other buildings on a buyer’s property, such as a garage. Inside the house, standard coverage includes repairing and replacing items such as the water heater and furnace if they are damaged during an event included in the buyer’s policy.
Homeowners’ insurance also covers in-home personal property damaged, stolen, or destroyed. Items such as appliances, clothing, furniture, and electronics are replaced at total value. But the owner can decide to receive a cash payment for the items after a depreciation assessment. Remember that for rare and expensive items like jewelry or art, the buyer must pay a higher premium or purchase additional coverage.
Finally, homeowners’ insurance pays for medical and legal expenses if someone other than you or your family is injured on your property.
Is home insurance necessary?
Think about it: This is the place where you keep most of your family’s possessions. It costs a lot of money and effort to purchase your home, not to mention the goods inside it and all the items that mean the most to you. Who wouldn’t want to protect that? But moving past the emotional factor, you likely need homeowners’ insurance if you own a home. If you get a mortgage or loan to pay for your home, the bank or mortgage company will likely make it a requirement. That’s because your lender will want to ensure their investment is safe in case of a flood, fire, storm, or other disaster.
You technically don’t need home insurance if you paid cash for your home or paid off your mortgage. However, it’s still a good idea, so you don’t have to worry about money if something happens to your home or belongings.
The same thing is true for townhomes or condominiums. If you are borrowing to complete the purchase of your home, your provider will probably ask for a policy. Condominium or private community associations may also require homeowners’ insurance to cover common land and facilities like a shared roof, common walls, a tennis court, or a swimming pool.
Home insurance is an intelligent decision even if your mortgage is paid off, you paid cash, or you received a mortgage-free inheritance. Most people don’t have the immediate funds to rebuild or make significant changes to their home if it is destroyed or badly damaged. Homeowners’ insurance is much cheaper than paying for repairs out of your pocket.
How much insurance do you need?
The amount of insurance protection you’ll need is directly proportional to the cost of rebuilding your home. You should also appraise and make an inventory of your household goods.
Some suggestions for calculating house insurance premiums:
- Estimate how much it would cost to replace your house and any other structures on your property, like a garage, pool, or fence. Multiply your home’s square footage by the cost per square foot in your area to get a ballpark estimate of how much your house will cost. Let’s say a local builder charges $140 per square foot. Rebuilding a home of 2,200 square feet would cost $308,000. A local insurance agent, real estate agent, or appraiser can probably help determine local building costs.
- Include patio furniture, collectibles, musical instruments, and sports gear with your indoor furniture and belongings. Don’t forget about the things you keep in the attic or the garage that you don’t use daily, such as tools, silverware, and holiday items.
- Be as specific as possible when documenting your goods. For example, to correctly estimate replacement costs and make a claim, keep careful records of when and where expensive items were acquired.
- Make a video inventory of your possessions. Document the contents of each room, and don’t forget to add to the footage regularly and save it to the cloud of your computer or mobile phone. Then, even if these items are destroyed, you can still access your records from another device
- Think about how much it would cost to replace everything you own. For example, consider the current market value of an item like a washing machine rather than the initial purchase price. Due to inflation and other variables, the cost to replace an appliance that is only two years old can easily exceed the original purchase price.
Insurance is not just another expense
When you think about the moments you’ll remember during a home purchase, homeowners’ insurance won’t be on that list. It’s just not exciting enough to qualify. However, buying a home insurance policy helps preserve the place that matters most to your family. It’s where you keep precious items and make new memories worth protecting. A bit of effort now could save you a ton of heartache and stress should the worst thing happen.
