Like the types of auto insurance, homeowners insurance is actually a bundle of different categories of coverage, which apply in various situations.
What’s Right For You?
Several lines of insurance are available to cover various perils. The most appropriate insurance for you depends primarily on your type of dwelling.
1. Owning a Home – If you own a home, there are two policy forms that are available to you: homeowners and dwelling forms. The main difference between these two types of forms is that the homeowners form combines property coverage with liability coverage. Dwelling forms only cover property losses. Both types of policy forms have the various peril coverage available for both your dwelling and your contents.
2. Owning a Manufactured Home – There are policy forms specifically designed to cover property for manufactured homes. This type of policy covers both dwelling as well as contents.
3. Owning a Condominium – Policies designed for condominium owners primarily cover contents. However, there is a small provision included to cover the portions of the dwelling that are your insurance responsibility as defined by the governing rules of the condominium. Generally, additional dwelling coverage may be purchased if the provision included in the package is not sufficient.
4. Renting a Residence – If you are renting a residence, coverage for your contents is available through renter’s insurance.
5. Owning a Home on a Farm – If your primary dwelling is on a farm or ranch, you may not qualify for standard homeowners insurance. A farm owners’ policy may be the most appropriate form to cover losses to your home as a result of tornadoes or hail. Additionally, a farm owners form provides coverage for both the personal and commercial exposure of farms, and contains both property and liability coverage.
What Does Homeowners Insurance Protect Against?
In most standard policies, you will be covered for damage to your home and its contents as well as liability for accidents that occur on your property. As a homeowner, it’s important to carry insurance not only against damage to the house itself, but also to the contents of the house if something should happen, such as a fire or flood.
You will also generally carry liability insurance to protect you in the event that someone else or their property is hurt or damaged in an accident on your property. Without insurance, you could end up with a lawsuit filed against you personally. Adding umbrella liability insurance coverage might also be a good idea.
Earthquake and flood policies typically need to be purchased separately, or as additional endorsements to your standard policy, regardless of your dwelling type. The limits of these policies can match the homeowners or renters policy, or they can be set as separate limits.
How Much Insurance Do You Need?
The level of homeowners insurance coverage that you’ll need from your homeowners insurance is generally determined by 3 things:
1. Asset Protection. Depending on the premium level you choose, you’ll have to pay more or less out of your own pocket if an accident occurs. If you have a larger financial cushion, you might be able to choose a lower premium which will provide less financial help or carry a larger deductible. Also, if you have a lot of assets which might be at stake in a lawsuit, you may wish to choose a higher level of liability insurance to protect those assets if you are sued.
2. Lender Requirements. If you have a mortgage, your lender may require that you carry homeowners insurance. Generally the minimum coverage is the amount of the mortgage, so that if there is a catastrophic event such as a home fire and the house is a total loss, the mortgage company will be able to recoup the remainder of your balance. Obviously, having more coverage will mean the insurance will be able to benefit you as well as your bank.
3. Policy Requirements. Your insurance company may require that you purchase specific types of coverage, such as flood insurance if you live in a flood-prone area, in order to carry general homeowners insurance.
It is extremely important for you to thoroughly understand your homeowners insurance policy. You should know what perils are covered, and whether the coverage amounts are sufficient in the event of a disaster. Your insurance agent should be more than willing to discuss your specific insurance needs, as well as recommend possible ways to reduce your premiums, or mitigate potential losses. But again, the responsibility is yours.