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3 Things Homeowners Should Know About Homeowners Insurance

Homeowner's premiums and coverage optionsThis is a post from Tali Wee at Zillow.com. Enjoy!

The process of buying a home is both exciting and detailed. Buyers must present their lenders with countless documents specifying their financial standing and reliability as borrowers. In addition to producing numerous documents, buyers must acquire homeowners insurance for the remainder of entire loan terms.

Here are three important aspects of homeowners insurance that buyers and owners should understand.

1. Homeowners Insurance Is Required

Lenders require borrowers to obtain homeowners insurance to ensure their investments are protected in case of unpredictable damages to properties or financial burdens to borrowers. As long as homeowners carry mortgages they are required to obtain basic policies.

Buyers should shop around for the best insurance rates and personalized policies that suit their specific coverage needs. Most homeowners have highly-valuable belongings worth insuring. Buyers looking for discounts should contact their auto insurance providers for bundled insurance quotes.

2. Homeowners Insurance Protects More Than the Home

Not only does homeowners insurance protect investments, it covers homeowners’ personal belongings, liability and protection against theft and natural disasters. Homeowners insurance can cover jewelry, clothing, furniture, bicycles, expensive equipment and other itemized possessions. Additionally, most homeowners insurance plans cover belongings stolen from cars and some even cover belongings while homeowners travel.

If a house guest falls and obtains an injury, liability coverage protects homeowners through lawsuits or payment of medical bills. The same applies to damages inflicted on other properties, such as a homeowner’s deck caving and falling on their neighbor’s property; homeowners insurance would cover the repair costs owed to the neighbor.

Many natural disaster damages are covered by homeowners insurance such as hail, wildfires, tornados and hurricane damages (excluding related flooding). High-risk locations require additional insurance coverage including flood policies or earthquake insurance. In the case of severe property damages where homeowners are displaced from their homes, insurance even covers shelter costs to avoid high prices of extended stays at hotels.

3. Home Insurance Premiums Fluctuate

Upon purchasing homes, buyers might shop around for policy prices and feel confident they have the best possible rates. However, as most businesses adjust their pricing, insurance providers alter their premiums to match competitive market rates. Buyers should shop for new, lower homeowners insurance rates annually to ensure the best rates.

Beyond standard business price increases, elevated onsite risks prompt higher premiums, too. Older homes with outdated roofs, electrical or plumbing systems carry higher risks for structural, fire or water damages. Home improvements increasing square footage or adding swimming pools can also raise premiums.

When insurance prices rise, monthly mortgage payments increase. Monthly mortgage payments consist of principal, interest, taxes and insurance. On fixed-rate mortgages, the principal and interest costs remain the same throughout the life of the loan. However, owners shouldn’t be surprised by inflated mortgage payments due to tax increases or larger insurance premiums. Home buyer and owners must keep in mind that monthly payments are susceptible to increases – sometimes a couple hundred dollars per month.

Homeowners should prepare to pay more for their insurance in the future and continue to update their policies along with home upgrades. Finding the right policy and detailing possession can save homeowners thousands of dollars if damages occur.

 Kim’s Comments: Last year, lots of people in Colorado found out the hard way that flood damage is not part of a standard homeowner’s policy. It’s always a good idea to make sure you have all the coverage you could possibly need before the unimaginable happens.

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

13 comments

  1. Great tips on home insurance. I have a question: what is the advantages of fixed-rate mortgages? I’m still deciding the kind of home insurance I am gonna acquire.

  2. We experienced a basement flood in 2009 due to a freak storm that dumped a ton of rain down a very narrow corridor in our community. It was covered by insurance and was a lot of work to clean up and renovate our whole basement from the damage. Consequently, our insurance went up and we tried shopping around for other insurance but no company would touch us until at least 5 years had passed. It’s been just over 5 years since the flood, but not 5 years since the claim. We’re going to start shopping around again now. Sometime told me that it was illegal for insurance companies to do this but I have not found anything to support that claim. We currently pay $218/mth ($2600 annually) for a 3000 sq. ft. home (excluding basement square footage).

  3. A lot of people here got a nasty surprise on the flood insurance here too post Sandy.

  4. Knowing that our renters insurance doesn’t cover flooding we made sure to find a place not anywhere near the waterfront and on higher elevation. It’s so important to read the policy coverage!

  5. Homeowners insurance is a must. I would make sure to have enough to replace not only my home but all the belongings on the inside should something drastic happen.

  6. While we don’t have true “flood” insurance, we do have coverage if our city’s drainage system fails. I know this firsthand because last Summer when we had the hardest rain I’ve ever witnessed the city’s drainage system was overloaded and filled the smaller drain pipe between our neighbor’s yard and our yard.

  7. If the pipes burst and leak during winter, will this be covered as part of home insurance? What category?

  8. To be honest, we all hate paying for insurance.You are highly unlikely to have saved enough to cover the cost of damage on your own by saving insurance costs. It is important to look for the insurance policies which makes more sense and provide you with financial security.

  9. I didn’t know that insurers change their rates so frequently so thanks for the tip on shopping around for a policy annually. Also, knowing exactly what is covered by your insurance policy is very important. My aunt had an unexpected flood and luckily she found out that her policy covered it, but she would not have been prepared if she found out it didn’t! Thanks for the tips I will remember them when I get my own home.

  10. Thanks for the great information about homeowner’s insurance. It is a relief to know that these policies protect our belongings as well as our home. I will be sure to choose an agency that offers protection like liability coverage as well.

  11. I didn’t know that homeowner’s insurance covered more than just the home. I thought it was very interesting that if a guest falls, insurance will protect the homeowner through the lawsuits and financial issues. Getting this coverage definitely is a good idea so that you are prepared for the most unexpected event. It definitely gives me some peace of mind that if something unexpected like an aunt falling down my stairs happens, I won’t have to be held responsible for the incident.

  12. Insurance is the smartest thing you can get for a home. You can loose a lot to water damage or a fire. I would highly suggest seeing the percentage of risk your home has for each disaster. That way you can get accurate insurance.

  13. I am looking to buy my first home this year. It would be nice to be able to save enough to know how much I need for my homeowners insurance payments. Are these rates fairly standard or do they differ from provider to provider?

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