Why You Should Buy Homeowners Insurance
By Ty McDuffey, J.D. | Legally reviewed by Aisha Success, Esq. | Last reviewed November 20, 2023
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When you buy a new home in the right neighborhood, you want to protect your investment and future. This is where a homeowners' insurance policy comes into play. Home insurance can protect your home and your wallet from unexpected events. Here's why you need homeowners' insurance.
A Homeowners' Insurance Policy Protects Your Investment
A homeowners' insurance policy is a contract between you and your insurance company that says it will help pay for certain damage to your home or belongings.
When you buy a new home, your real estate agent might tell you about the importance of having homeowners' insurance coverage. This insurance is not just for first-time home buyers; it's for anyone owning a home.
The standard homeowners' insurance usually includes different types of protection. For instance, if a windstorm or a wildfire damages your house, your policy covers the cost to fix it within certain limits. This means you wouldn't have to pay all the money to rebuild your home out of your pocket. The coverage you get depends on what kind of policy you choose.
Insurance Agents and Companies Can Help You
An insurance agent can guide you through choosing the right insurance. They explain what an insurance policy includes, like liability coverage, which helps pay if someone gets hurt on your property, and replacement cost, the amount needed to replace or repair your home and personal belongings without deducting for depreciation.
It's best to discuss insurance costs and get quotes from different insurance companies. That way, you can compare insurance rates and see which one offers the best deal for the coverage you need. The price you pay for your insurance, called a premium, can vary greatly depending on the insurance carrier and the type of house you have, like a condominium or a standalone home.
Understanding Replacement Cost and Actual Cash Value
Replacement cost and actual cash value describe how much money you can get from the insurance company if you need to replace your things. Replacement cost doesn't count depreciation, which gives you enough money to buy a new version of what you lost. Actual cash value considers depreciation and pays you the item's value, considering its age and condition.
Getting Enough Coverage and Considering More Coverage
To ensure you have enough coverage, doing a home inventory is important. This is a list of all your valuable items, which helps you figure out how much personal property coverage you need. Remember, standard homeowner's policies have coverage limits, the maximum amount they will pay. If you have special things like jewelry or art, you may need more coverage to protect them fully.
Your insurance agent will also discuss exclusions, which your policy doesn't cover. For example, most standard homeowners insurance doesn't include flood insurance, so you might need to buy that separately, especially if you live where natural disasters like floods are common.
Planning for Extra Living Expenses
If your home gets so damaged that you can't live there, your homeowners' insurance can cover your living expenses elsewhere, like a hotel. This is additional living expenses coverage. It helps make sure that a big problem with your house doesn't turn your whole life upside down.
Why Insurance Costs Are Ultimately Worth It
Even though paying insurance premiums is an extra cost, consider it an investment for peace of mind. If something bad happens, like a fire or theft, you won't have to worry about how to pay for repairs or replace your personal belongings. Your insurance coverage steps in to help with those mortgage payments or other expenses tied to your damaged property.
Working With Your Mortgage Company or Lender
Your mortgage lender will often demand you to have a homeowners' insurance policy. They want to protect the property that's tied to the mortgage. Sometimes, your mortgage payment includes an amount that goes into an escrow account, which the mortgage company uses to pay your insurance premiums. This ensures that your insurance never lapses, protecting you and the lender.
Speak With a Lawyer if You Have Questions
Buying homeowners' insurance can seem complicated, but it's a key step in being a responsible homeowner. It helps ensure your home — where you build memories and find comfort — is secure.
If you're overwhelmed by the options or the details, consider reaching out for help. An attorney can help you review your policy to ensure it meets your needs, especially when it comes to understanding the fine print on coverage limits, exclusions, and the difference between replacement cost and actual cash value.
Next Steps
Contact a qualified real estate attorney to help you navigate issues relating to home ownership.