What is homeowners insurance and how does it work?

Your finances are protected from damage by homeowners insurance. You are entering into an agreement when you buy a home insurance policy. You agree to pay your premium in exchange for the insurance company paying for certain covered perils. Knowing your home insurance policy will help you be more prepared for any unexpected damage, and make you feel more comfortable about your coverage in the event you need to file a claim.

What is homeowners insurance?

You can purchase homeowner’s insurance from an insurance company. It is financial protection. It covers damages to your home if you are a victim of a covered catastrophe or another damaging event.

A standard insurance policy protects you in a variety of ways:

  • Structure and belongings of your home: Home insurance provides financial protection for your home’s structure as well as your belongings in case of an insured event.
  • Additional living expenses: Your homeowner’s insurance usually covers any additional living expenses that you have while your home is being repaired. This means that if you are required to stay in a hotel or dine out, you might be covered by your policy.
  • Liability protection: Standard homeowners insurance policies include liability protection. Your liability coverage may help you pay the expenses of someone who is injured on your property.

There are many types of homeowners insurance. An HO-3 policy is the most popular type of home insurance. It covers homeowners who have a mortgage or any other type of loan. HO-3 policies include, on average:

  • Coverage for dwellings
  • Coverage for other structures
  • Protection for personal property
  • Liability
  • Medical payments
  • Additional living expenses

Different policy types have different coverage perils. It is important to understand what perils your policy covers, such as burglary, fire damage, and water damage. While policies that cover more perils are more expensive, they can provide financial protection in more situations.

What is the process of homeowners insurance?

The homeowner’s insurance journey can be broken down in several steps. Each step has its own set of requirements. Understanding each step can help you to understand the workings of your policy.

Obtaining quotes

Although homeowner’s insurance is easy to get, there are some things that you need to know when evaluating companies.

First, you may want to research several homeowners insurance companies to find which carriers best fit your needs. You may also want to consider how each company’s coverages and discounts fit into your particular situation as you compare them. J.D. can help you review customer service. You can review customer service by J.D. Power’s many studies and AM Best’s ability to help you assess an insurance provider’s financial strength. After you’ve chosen a few companies that might suit your needs, it is possible to contact each company to receive quotes. This can be done online, over the phone, or in person at a local agency.

Ask about the discounts offered by each company during your quote process. One of the best ways to reduce your premium is to take advantage of home insurance discounts. These often include savings on home alarm systems, bundle policies, and being completely uninsured.

Purchase a policy

Once you have chosen the company you feel is best for you, your family and your home, you can purchase your policy. Before the policy is put in place, you may have to sign the application and pay the fee.

Many providers offer different payment options such as quarterly or annually. You may not have to pay a monthly mortgage payment if you do not have one. Your premium could be included in your monthly mortgage payment. It will be held in an escrow account, and paid to your insurance company at every renewal.

Your mortgage servicer should be notified if you are changing to a different company from your current policy. The mortgage company will be notified by your new insurance company. However, it is best to inform your loan servicer in advance to allow them to take note of your file and prepare to receive documents and invoices from the new insurance company.

Intentionally maintaining a policy

It is easy to maintain a policy once you have it in place. If your coverage is paid out of your escrow account you will need to pay the premium. If you make any changes to your home or lifestyle, like updating your roof, renovating a room or getting a dog, you should notify your insurance carrier to make sure that your policy still properly covers you.

How to file a claim

You may have to file a claim if something unexpected happens and your house is damaged. Online, via a mobile app, in person with an agent or over the phone are all ways to file a claim. Questions about general information such as where and what type of damage occurred, when it happened, etc. can be expected. It is standard to request photos of the damaged areas or allow a claims adjuster access to your home to inspect the damage before you send any payouts. Your insurance provider will decide the next steps once you have initiated the claims process.

Do homeowners need insurance?

There is no state that requires homeowners insurance. If you have a mortgage, however, your lender may require that you have homeowners insurance. Your lender is protected by homeowner’s insurance in the event that your home is damaged.

Even if you don’t have a mortgage, homeowners coverage may be an option. Financial advisors strongly recommend that homeowners purchase insurance. Your home insurance can pay the cost of rebuilding or replacing your home if your house is damaged or destroyed by a covered risk.

What is the cost of a home-insurance policy?

The average cost of homeowners insurance in the United States is $1,312 per year for $250,000 in dwelling coverage. However, there are multiple variables that influence the cost of homeowners insurance, which means that your premium could differ from the national average. These factors include:

  • Your ZIP code and state: This is a major factor in determining how much home insurance you will pay. Your premium can be affected by the probability of certain claims in each state, and even every ZIP code.
  • Your premium can be affected by the construction of your home. Certain types of construction are better at withstanding certain kinds of damage like fire or wind, which could lower your premium. Some building materials can be more costly to repair which could raise your premium.
  • Age of the home: Older homes are less likely to be damaged by a variety of factors, including weather and plumbing problems. Older homes might not be built to current standards. This means that additional work may be required to fix or replace the materials. Costs for updating materials can drive up costs.
  • Distance to nearest fire station: The closer you are to a fire station, the faster authorities are likely to get you in an emergency. This could reduce damage and allow emergency responders to get to you faster.
  • Deductible: This is the amount that you agree to pay out-of-pocket if you file an insurance claim. A higher deductible will mean that your insurance company will pay less to you if you file an claim.
  • You will pay more for insurance if you have higher coverage levels. The same goes for optional coverages. The more you add to your policy the higher the price you’ll pay.
  • Credit score: In most states, your credit score affects your home insurance premium, as homeowners with lower credit are statistically more likely to file a claim than homeowners with higher credit scores. Some states do not allow credit to be used in rating factors.
  • Your premiums could be higher if you have ever filed a homeowners’ claim in the past three to five years. Even if you change insurance companies, your new carrier can see your past claims and may charge you accordingly.

The company you choose can also impact the cost of homeowner’s insurance. Each pricing variable is weighed differently by insurance companies. For example, one company might weigh your claim history differently than another. You might find the right coverage at a fair price by shopping around and getting quotes from multiple carriers.

Questions frequently asked

What amount of homeowners insurance do you need?

Your coverage level will depend on your personal situation. Your dwelling coverage will be based on your home’s replacement value. Therefore, more expensive homes require more coverage. Other structures coverage, personal property coverage, and loss of use coverage are all typically percentages of the dwelling number. Personal liability coverage is determined by your individual circumstances. Agents recommend higher levels for guests who use a trampoline, pool or trampoline frequently. A licensed agent can help you select the right coverage level.

What speed do insurance companies process claims

While most home insurance companies aim to settle claims within 30 working days, the actual payout time will depend on each claim. Payouts can take longer if a claim involves catastrophic circumstances or injuries that result in multiple homes being damaged.

Do you prefer to work with a local or national provider?

There are advantages and disadvantages to both regional and national providers. You might be able to choose the best provider for you by comparing their coverages, discounts, policies features, and third-party reviews. You might be able to get quotes from both providers and determine which one best suits your needs.

What is homeowners insurance not covering?

While each type of home insurance policy covers different perils there are certain things that standard policies don’t cover. Damage caused by flooding is typically excluded and can be obtained by purchasing a flood insurance policy, although a few companies offer flood coverage as an endorsement. If you are in an area at high risk, earthquake damage can also be excluded. However, it is possible to add endorsements. You may need a separate policy in this case.