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What Kind of Insurance Do Homeowners Need?

If you have a house, there is a very probable chance that a lot of your personal net worth is directly associated with your home. As such, you will certainly want to insure your house, but before you can do so, it is imperative that you are aware of every detail regarding what you need to purchase in the form of insurance. It’s also necessary for you to look at what’s available to you within the parameters of what you need.

Basic destruction

It is important to obtain coverage that protects your home against destruction and any damage that is caused to your house’s interior and exterior. This includes losing your possessions and becoming the victim of theft in addition to your own personal liability for harm that others have sustained. 

In most cases, your insurer will compensate you, meaning your house should then be able to be repaired or even rebuilt. However, that’s only the case if the damage your property has sustained warrants such an outcome. A number of causes can result in these damaging circumstances, including but not limited to fire, a hurricane, lightning, hail, an explosion and vandalism. 

However, certain events are explicitly not covered in many cases, such as amidst the destruction or mutilation of your home as the result of a flood, an earthquake or simply poor home maintenance. That said, you can certainly obtain flood insurance if you apply through a government-backed program, especially if you reside in a part of the world that is prone to flooding due to the climate and the environment. 

Also, you may require separate riders for nonstandard items. For instance, freestanding garages, sheds and various other structures on your property might need to be covered separately. 

Home contents

With the proper insurance, the contents of your home, usually including clothing, furniture, appliances and various other items, should be covered in the event that they are destroyed as the result of an insured disaster. For instance, off-premises coverage makes it possible for you to file a claim when you notice that you’ve lost a piece of jewelry. 

Even if you can’t remember where you were when you had the jewelry last, you can usually still file a claim, though there might be a limit in terms of how much you’ll receive in the form of reimbursements. As such, try not to set high expectations. Also, make it a point to be prepared for more expensive possessions, like fine art or antiques, to require coverage in the form of a rider or a separate policy.


Liability coverage protects homeowners from potentially being on the receiving end of lawsuits filed by other people. For example, what would you do in the event that your dog bites someone? While standard policies typically come with liability coverage, you may require more than your plan offers, and since it typically isn’t terribly expensive, obtaining liability coverage is usually in your best interest. 

Levels of coverage

There are three primary levels of coverage:

  • Actual cash value — Covers the cost of your house in addition to the value of your belongings once you have deducted for depreciation.
  • Replacement value — Covers the actual cash value of your home as well as the possessions in it prior to deducting for depreciation.
  • Guaranteed or extended replacement value — Covers the cost of repairing or rebuilding your home, even if the cost of doing so is upward of 20% to 25% more expensive than your policy’s limit.

Certain experts place emphasis on the fact that you’ll only be insuring approximately 90% of your home’s value if you choose to buy just enough insurance to take care of your mortgage. That’s because markets fluctuate constantly, meaning it’s a wise idea to obtain coverage with a greater value than your home’s worth. That way, you’ll have some sort of cushion in the event that construction prices increase over time, which is not uncommon.

How can you get discounts on coverage?

Reach out to your insurer to see whether any of the following situations can help you lower your annual premiums:

  • Security system — By installing a burglar alarm and having it either monitored by a central station or tied to a local police station, you’ll be able to lower your annual premiums ever so slightly. 
  • Smoke alarms — Using smoke alarms can save you 10% or more in annual premiums every year.
  • Deductible — The higher your deductible, the lower your annual premiums. This might mean that you’ll find yourself in the position of absorbing various claims that add up to a few hundred dollars, such as issues like broken windows that cracked over time or damaged sheetrock as a result of a leaky pipe. 
  • Multiple policy discounts — When you combine multiple policies, you’ll be able to receive a discount. Typically, discounts are at least 10% when you add another type of insurance. You can even add both! 

By participating in comparison shopping at least once per year, you’ll be more diligent about reviewing your existing policy. When you do so, you’ll have the opportunity to see whether you are able to lower your premiums by way of the recent changes you’ve made to your home.

The aforementioned details are merely part of a brief conversation that summarizes a very complex decision-making process. Ultimately, the rules of the game will vary based on location. The best approach to take is to schedule a sit-down discussion with a reputable insurance agent, and when you do so, don’t hesitate to ask as many questions as you have! 

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