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What Is Homeowners Insurance?

Homeowners insurance is an insurance policy that helps you financially if your home or belongings are damaged or destroyed. For more information on homeowners insurance, check out our Homeowners Insurance 101 page.

Why Do I Need Homeowners Insurance?

More than likely, your mortgage lender will require you to purchase homeowners insurance. This helps protect your ability to keep making your monthly payments on your home loan (which may be compromised in the event that you need to make expensive repairs to your property) as well as the value of their asset. If you fail to get home insurance in a timely manner, your bank may purchase it for your home and add that expense to your mortgage payments.

Even if your home is 100% paid off, homeowners insurance can save you from financial ruin in the event that you experience catastrophic damage or loss to your home or belongings. The chart below shows how much you can expect to pay in premiums for your home over the life of a typical mortgage vs. how much it may cost to replace a destroyed home if your mortgage is paid off and you no longer feel like maintaining a policy.

Homeowners Insurance Cost/Benefit Analysis Legend: 20 Years of Premiums Total Loss Replacement Cost Florida Connecticut Oklahoma Colorado Louisiana 30000 60000 90000 120000 150000 180000 210000 240000 270000 300000 330000 360000 390000 $29420 $280000 $26580 $300000 $28260 $175000 $25960 $395000 $27820 $200000

What Factors Can Raise, Lower, or Affect Your Homeowners Insurance Premiums?

The following factors can affect your homeowners insurance premium:

  • Home Features and Characteristics – Older homes, weaker structures, electrical wiring, roofing materials, and more will alter how your insurance company determines your premium. The stronger your structure is, and/or the less expensive it is to make repairs/replacements on your home, the lower your premium will be.
  • Location, Location, Location – The location of your home will have a significant influence on how high or low your premium is. It’s not a coincidence that the states with the most expensive home insurance premiums are located in coastal areas or areas prone to earthquakes and severe weather. But if you take precautionary measures to reduce your risk, you may be able to lesser your financial burden.
  • Protective Devices – Burglar alarm systems, fire breaks, smoke detectors, fire extinguishers, sprinkler systems and deadbolt locks can lower your homeowners insurance premium. If you know severe weather is coming, you can also take measures (such as boarding up windows with plywood or sandbagging your dwelling) to reduce potential damage.
  • Claims History – The fewer claims you file over time, the lower your premium will be. But if you have a detailed and extensive claims history, your insurance company will charge you a higher premium.
  • Personal Factors – Are you a smoker? Because smokers tend to receive higher homeowners insurance premiums. And like many other things in the US, your credit score will have a significant affect on your overall premium.
Homeowners Insurance by Credit Score Legend: Average Credit Score Excellent Credit Score Florida Connecticut Oklahoma Colorado Louisiana 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 $1471 $1044 $1329 $944 $1413 $1003 $1298 $922 $1391 $988

What Is a Home Inventory, and Why Do I Need One?

There are two important reasons to create a thorough and accurate home inventory before you start shopping around for your homeowners insurance. For starters, it can help you get exactly as much coverage as you need, without going over. This can help keep your premiums low, but at the same time ensure that if you have to file a claim, it will be honored enough to sufficiently repair/replace whatever needs fixing.

Another reason to have an accurate home inventory on hand is to help expedite the claims process if you have to file one. It will help your insurance company verify your property faster, which can get your claim processed more quickly. It will also help you when you have to note a loss on your upcoming income tax return.

The first home inventory will likely be the most complicated and take up the most time. But for every year thereafter, it will be an easier and simpler process. All you have to do is update any changes made to the inventory of your home instead of starting from scratch. And keeping your inventory up to date is an essential part of responsible home ownership.

What Is the Basic Structure of a Homeowners Insurance Policy?

Your home insurance policy will likely be custom tailored to your unique needs as a homeowner. But most insurance policies will follow a specific, basic structure.

  • Declarations Page – Usually the first page of your homeowners insurance policy, it typically contains the following summary information:
    • Name and address of the insured
    • Dollar amount of coverage in the policy
    • Description of the insured property
    • Cost of the insurance
    • Name of the insurance company insuring the risk
    • Contact information
  • Definitions – This section explains the meaning of terms used in the policy
  • Coverage – Details the extent of protection for both property and liability in your homeowners insurance policy
  • Exclusions – Explanation of what is not covered by your homeowners insurance policy, under both property and liability coverage
  • Conditions – Outline the responsibilities of both the insured and insurance company under the policy. Your duties in the event of a loss and also the procedures the company will follow to settle any losses are detailed here.
  • Endorsements – Riders, amendments or attachments that alter the standard coverage provided by your home insurance policy. If you choose endorsements for your policy, you may pay an additional premium for them.

For More Information

Homeowners Insurance 101

Filing a Homeowners Insurance Claim

Common Homeowners Insurance Pitfalls

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