What Does Homeowners Insurance Cover?
Your lender will require you to get homeowners insurance if you want to get a mortgage, but you might have a lot of questions about what it is and how to get it. We’re taking a deeper look at how homeowners insurance covers you and the costs involved.
What Is Homeowners Insurance?
Homeowners insurance is a form of property insurance that covers loss and damage to your house as well as assets inside your home. Homeowners insurance will often cover the costs needed to bring your home back to its original value if it becomes damaged.
Homeowners insurance covers two types of damages: dwelling and liability. Dwelling coverage protects you against damage to your home. For example, if your roof is destroyed in a fire, dwelling coverage foots the bill. Liability coverage protects you against lawsuits brought against you. For example, if someone is injured on your property and sues you, liability insurance would pay for your lawyer and any court-ordered fees.
Mortgage lenders require you to get homeowners insurance when you get a loan to ensure that you'll be able to cover any repair bills after an incident. You can pay your insurance through an escrow account. This adds your insurance premium onto your monthly mortgage payment, allowing you to pay it monthly instead of in a yearly lump sum.
What Does It Cover?
When you sign up for insurance, your provider will give you a list of situations you’re covered under, called covered perils. Check out our list of common perils below.
Damage To Your Home From Natural Disasters
Your homeowners insurance policy protects you against damage from most types of natural disasters such as wind, hail, fire and electrical storms.
Keep in mind that there are a few types of natural acts that aren’t covered. Damage from floods and earthquakes are usually not covered by homeowners insurance. If you live in an area that sees a lot of earthquakes and flooding, you can buy an add-on policy that fills in this gap.
Damage And Theft Of Personal Property
Homeowners insurance covers your clothing, furniture, appliances, electronics and other personal property. Your insurance will offer you a payout if any of these items break during a natural disaster or are stolen.
Homeowners insurance policies often limit personal property protections on high-value items. For example, you might have a policy that has $100,000 worth of personal property coverage, but it may also include a caveat that says you can only get up to $1,000 for broken or stolen jewelry. If you have something valuable you want to protect, you can add a rider to your policy. A rider is a policy extension that gives you more coverage for high-value items.
Your personal property protection also extends outside of your home. For example, your homeowners insurance will still cover you if someone steals your laptop at work. Your children under the age of 26 who live away from home are still covered under your policy. Keep in mind that insurance companies may also put limits on personal property protection for those who don’t live in your home.
Damage To Other Structures On Your Property
Homeowners insurance also protects you from damage or theft to other structures on your property. Pools, fences, sheds, and detached garages are also covered under most policies.
Lawsuits And Claims Against Your Property
Liability insurance protects you from financial loss after a lawsuit. Your homeowners insurance will cover you if someone injures themselves and sues you for the cost of their medical bills. If your lawsuit goes in front of a judge, homeowners insurance will also cover the cost of your lawyer or other legal representation.
Your homeowners liability insurance also protects you against damage to your neighbor’s property. For example, if a tree in your yard falls and damages your neighbor’s roof, your homeowners insurance will cover their repair bills.
Bringing Your Home Up To Code
Homeowners insurance also protects you when building codes change. For example, let’s say that your state government passed a law that said every kitchen needs to have sprinklers. Then, a grease fire ruins your kitchen. Your homeowners insurance may cover the costs of installing a sprinkler in your home as well as the repairs to your kitchen.
Losses Due To Pet Bites
Liability insurance doesn’t only protect against accidental trips and falls. Dog bites are some of the most common insurance claims. Most homeowners insurance policies classify pets as your property. This means that dog-bite protection is free with most policies. This caveat can save you thousands of dollars if a guest or contractor is bitten by your dog. Dog bite claims average around $37,000, according to the Insurance Information Institute (III).
Keep in mind that homeowners insurance policies can limit dog bite protections. Breed restrictions are the most common limitation policy. Your homeowners insurance may not insure certain dog breeds or may restrict your coverage if you have a breed that’s deemed more aggressive. Some of the most restricted breeds include Rottweilers, pit bulls and German Shepherds. Other insurance companies go on a case-by-case basis. If your dog bites someone, you can probably expect to see your premium increase.
You may be able to lower your premium by taking steps to show that your dog isn’t a danger to the insurer. Some insurance companies will loosen their breed restrictions if your dog completes obedience school. You can also get a certificate from your dog's veterinarian confirming your dog’s unlikeliness to bite.
Damage Due To Power Outages
If you’ve ever been stuck at home waiting for your power to come back on after a storm, you may have had to throw some food out of your fridge. Most homeowners don’t know that their insurance policy probably includes a credit that covers the loss. Many homeowners insurance policies include refrigerator-restocking fees to pay for more groceries. Refrigerator-restocking fees vary by policy but are usually around $500 per incident.
How Much Is Homeowners Insurance?
According to data from the Insurance Information Institute (III), the average homeowner pays about $1,200 every year for homeowners insurance. It’s impossible to say exactly how much you’ll pay because every insurance company uses a different formula to calculate premiums.
You’ll also be able to see your homeowners insurance premium on your Closing Disclosure, which is a document that will list your final costs in detail so you know what you’re responsible for paying. You’ll receive your Closing Disclosure three business days before you close on your loan.
How much you pay for insurance depends on a few different factors. Here are just a few of the most common factors that insurance providers use when they calculate your rate.
Condition Of Your Home
Insurance companies may charge higher premiums for older homes or homes that haven’t been well-maintained.
Insurance premiums vary widely by state. Expect to pay more for homeowners insurance if you live in an area that’s prone to wildfires, flooding or other natural disasters. On the other hand, you can expect to pay less if you live close to a police station or fire department.
Even if your insurance company doesn’t ban certain breeds, they may still charge you more if you own an aggressive breed of dog.
Just like with a loan or credit card, insurance companies offer lower rates to people with high credit scores. Take some time to raise your credit score and it’s possible to lower your premium.
Your deductible is the amount that you pay when you make a claim before your insurance “kicks in” and covers the rest of the bill. You’ll pay more in premiums if you choose a lower deductible.
Extra Structures On Your Property
The more structures you have on your property, the more of a risk you pose to insurance companies. You may pay more for your insurance if you have a fence, tool shed or pool.
Your Claims History
Your claims history follows you from home to home. If you’ve made a homeowners insurance claim before, your insurance company may charge you more. This is because homeowners who have made claims in the past are more likely to have more claims in the future.
Homeowners insurance isn’t required by law like car insurance. However, most mortgage lenders require you to buy insurance before you can get a loan. Homeowners insurance is a type of safety net that covers you against financial loss.
Your insurance package usually includes two major types of protections: dwelling and liability. Dwelling coverage protects you against damage to your property, like a fire or theft. Liability coverage protects you against lawsuits and claims made against you for things like medical bills. Homeowners insurance protects you and your family against many types of damage. Some common claims include dog bites and fire damage.
The amount that you’ll pay for homeowners insurance depends on many different factors. Insurance companies look at factors such as where your home is located and your dog breed when they create your premium. Before you buy a home, you’ll be able to take a look at your exact yearly and monthly premium on your Closing Disclosure.
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