Home Owners Insurance

What You Should Know About Home Owners Insurance

In modern America, it's almost impossible to purchase a house without acquiring home owners insurance first. Considering the cost of a house, new or pre-owned, it's difficult indeed to purchase one without a mortgage loan; and no mortgage company worth its salt will let you borrow money until you make sure you have home owners insurance to cover their investment. They may even make you buy mortgage insurance if you can't make a down payment of 20% or more of the home's value, just in case you die before the end of the mortgage period.

Now, if you're rich enough to buy a new house outright or have long since paid off your house, congratulations -- you can drop your home owners insurance if you want. However, we recommend against that. You never know when a killer hurricane will come along and fill your city with water like an old washtub, or when some camper will start a fire that eventually burns down a good portion of your state.

Starting out

When you decide to purchase a home, you should immediately schedule a meeting with an insurance agent, preferably one who specializes in home owners insurance. You may discover that your mortgage company is also an insurance company, which can be a good thing; it makes it easier to roll your insurance payment into the mortgage escrow, and they might offer you a good deal if you do both pieces of business with them.

Your home owners insurance can cover just your house (and possibly items like pools and barns) or both the structures and your personnel possessions. You can also include a liability clause in your home owners insurance policy, so that if a visitor to your home is injured, they'll be covered. You may discover, to your surprise, that the insured amount on your insurance policy is less than the value of your home; that's because it only takes into account the value of the structure. The land your home sits on adds substantially to your overall property value.

What it doesn't cover

Basic home owners insurance isn't a perfect solution. For example, it generally doesn't cover water and flood damage; you may have to get separate flood insurance for that. If you live in a flood-prone area, you'll probably have to depend on government flood insurance, through the National Flood Insurance Program, to provide the flood protection you need. Similarly, earthquake damage may not be fully covered by basic home owners insurance policies, especially in states that are particularly earthquake-prone. Check your policy to see if there's an earthquake exclusion; if there is, you'll need separate earthquake insurance. There may be exclusions even for weather or specific elements of a home; for example, in areas that have many hailstorms (such as North Texas), some insurance companies either won't cover window replacement, or place the deductions unreasonably high.

There are also limitations on the value of personal possessions, particularly if those items are stolen rather than destroyed. For example, your insurance company might set a deductible of a certain amount before they will cover stolen jewelry, and even then may only go up to $1,500-$2,500 (possibly more for precious stones). Securities, coins, precious metals, and actual money have similar limits, though they are generally set lower.