The Basics of Homeowners Insurance

Your home is probably your biggest investment. It requires financial protection.

Nobody wants to think about something unfortunate happening to their home, but the reality is that you need to be prepared.

Homeowners insurance, sometimes called hazard insurance, is an important financial product that protects your home and belongings from risks like fire, theft, and natural disasters. Homeowners insurance offers that protection.

It usually covers your home's structure, personal items, liability for injuries on the property, and extra living costs if you need to move temporarily due to damage. Although coverage details can vary by policy, homeowners insurance provides peace of mind by safeguarding a major investment.

Homeowners insurance is typically required by mortgage lenders.

Please contact us for home insurance recommendations.

The Basics

What does Homeowners Insurance cover?

In general, homeowners insurance policies will cover the damage caused by ten basic threats, or “perils,” to your home:

  1. Fire or lightning

  2. Hail and windstorms

  3. Explosions

  4. Riots and civil commotion

  5. Damage from aircraft

  6. Damage from vehicles

  7. Smoke

  8. Theft

  9. Vandalism

  10. Volcanic eruption

What is not covered by Homeowners Insurance?

Damage caused by these threats, some of which are common in our area, is not typically covered by homeowners insurance. It is possible to purchase additional insurance to safeguard against these threats, which include:

  1. Flood

  2. Earthquake

  3. Pest infestations

  4. War

  5. Nuclear accidents

  6. Mold

  7. Sewer backups

  8. Certain high-priced or luxury items

Homeowners Insurance and Your Mortgage

Mortgage lenders require loan holders to have homeowners insurance. This is because people with homeowners insurance are more able to stay up-to-date with mortgage payments if their home or property are damaged in a disaster or accident.

If you are in the process of buying a home, start shopping for coverage when you apply for a home loan. The insurance agency you select will inform your lender about your new policy. During closing, you will provide documentation that proves you have homeowners insurance, as your home secures the loan against defaults.

Shopping for Insurance

Decide “how much” insurance you need

Before you start shopping for insurance (and before disaster strikes), take stock of your belongings. Doing this will help you understand how much coverage you need. Having an up-to-date list of all your belongings and their value will also make things easier if something gets damaged you need to file a home insurance claim.

Utilize the Home Inventory Worksheet for cataloging. Update it with new purchases and remember items stored off-site may also be covered.

Choose the right kind of insurance policy for your situation

To help you narrow down which homeowners policy you will need for your home, we’ve listed some of the features of two common homeowners insurance policies. There are many other types of policies. Be sure to consult your insurance agent when choosing a policy.

  1. Broad Form (HO-2) Insurance Policy
    This policy will cover the home itself and other structures on the property (like a detached garage or even fencing) from the 10 “named perils” listed in your insurance policy.

    This kind of policy also provides homeowners with personal liability coverage. This means, if someone is injured on your property and then sues you, your insurance company will pay a settlement if you lose the suit. Your insurer may also pay to defend you in court.

  2. Special Form (HO-3) Insurance Policy
    This type of policy is very common for single-family, owner-occupied homes. It will cover your home and attached structures against all perils, except those that are explicitly excluded. Your possessions are protected from the 10 named perils, and liability coverage is included.

    Because an HO3 doesn’t limit coverage only to named perils, it often can provide more financial protection than an HO2.

Coverage Levels

Cash Value
Covers the market value of the home, possessions, and other structures on the property, minus depreciation.

Replacement Cost
Covers the cost of rebuilding the home with similar materials and replacing possessions, with no depreciation consideration. It’s recommended to insure your home for at least 80% of its replacement value.

Full replacement cost policies may not be available for some older homes, as actual replacement or rebuilding of your dwelling is generally not possible. And mobile homes, condos, and historic homes have policies designated specifically for those types of homes.

Guaranteed / Extended Replacement Cost
Covers the cost of rebuilding and lost possessions and will pay up to a certain percentage over the policy limit. For example, if you have a $100,000 policy, you may be covered up to $125,000. This type of policy provides the most coverage and is the most expensive.

Updating Your Policy

As life brings its changes, make sure your home is protected

Life changes, home upgrades, and milestones like marriage or renovations can impact your coverage needs. So, check your insurance annually.

Ask yourself about recent changes. Did you acquire valuable items or alter your home? Do more or fewer people live with you than when you took out my original policy? Have you renovated or significantly remodeled your home?

If the answer to any of these questions is yes, it’s time to contact your insurance agent for a meeting!