Insurance in the United States has come a long way in since it was first introduced in the mid 1700’s by Benjamin Franklin and his Union Fire Company. One of the early advocates of insurance, Franklin began discussing his ideas with other fire-fighting groups in 1751, and the following year, the Philadelphia Contributionship was formed. The company began with some seventy members making equal contributions that would be used to cover any losses from a property fire.
Today of course, home insurance is very different. Around 95% of homeowners and 40% of renters hold property insurance and we have a huge range of options covering much more than losses as a result of fire. Our costs depend on a number of variables like the coverage we want and where we live rather than an across-the-board fee, and we can insure against many types of perils.
But despite all these advances in insurance, around 60% of American homes are underinsured. That is why you need to understand what your policy covers and to what value your property is insured. Read on to learn more about what homeowners insurance entails and pitfalls to look out for.
Let’s start with the different types of insurance available for your home and contents. The most commonly held insurance is by homeowners. Home insurance protects both your house and your personal property against damage or loss. Renters insurance on the other hand, provides coverage only for the contents of your home and not the house itself. There are different types of insurance you can purchase, however, homeowners insurance will generally cover:
- Damage to your home/other buildings on your property caused by certain risks
- Damage or loss of personal property (including theft of items that occurs off the property)
- Limited coverage for items of high value (i.e. art, jewelry, electronics, sporting equipment) and cash
- Expenses incurred while living in temporary housing while the house is under repair
Your insurance may also cover personal injury for visitors that get hurt while on your property, and many policies also cover accidents at home and away that are your fault and/or property damage or injury as a result of negligence on your behalf.
There are a handful of different policies called forms that a homeowner can purchase depending on the type of property and the level of desired coverage. HO-1 is the most basic policy offering limited coverage for the structure only, HO-5 policies are the most comprehensive, while HO-8 policies are designed for older homes where the replacement cost is higher than the value of the home. You can learn more about the different types of insurance policies here, although the most common policy is the HO-3 and it usually includes coverage for the following risks:
- Windstorms and hail
- Weight of ice, snow or sleet
- Water damage
- Aircraft and vehicle damage
- Falling objects
- Riots and civil disturbances
- Vandalism and malicious mischief
Just as important to note as the perils your policy will cover, are the risks that they will not. Not only is damage from events such as flood or earthquakes not covered by most policies, homeowners need to read the fine print on the items that they do cover. Take water damage for instance. While your policy may cover the water damage resulting from a burst pipe, it may not cover the cost of replacing the pipe. Or if it was a slow leak, it may not be covered at all. That’s why it is so important to check the wording of your policy before you commit.
In fact, there are a lot of things that may not be covered by your homeowners insurance, and many of them are things you probably wouldn’t even think of until they happened, like pest infestation, mold – even sinkholes. This article does a great job of outlining the items that are typically not covered by insurance and how to deal with them.
For the events not covered by a standard policy, or for extra coverage on higher value items, you can purchase additional coverage. If you’re wondering if you need flood insurance, this article by the Insurance Information Institute is a good place to start, while those looking into the pros and cons of buying earthquake insurance should give this a read.
When it comes to home insurance, it pays to shop around. This is true whether you are a first time homeowner, renter or already have a policy. If you are shopping for insurance, there are some key points you want to keep in mind:
- Look for replacement cost coverage so that the policy covers what it will cost to replace what is insured rather than its cash value at the time of loss.
- The insured amount should cover the value of the house and contents, not the land.
- Consider what special coverage you need.
To learn more about shopping for insurance, check out this comprehensive guide from USAGov.
Also remember there are a lot of variables that can affect the cost of your insurance premiums. The amount and quality of coverage you choose and the deductible will be factors that determine the price. The location of your property can also affect costs. If you live in a high crime or high fire danger area for example, you’re probably going to be charged more than someone living in a lower risk location. Your insurance claim history will also be taken into account, as will your credit rating. Even the condition of your home may be a consideration in how much you pay.
The bottom line is be smart when it comes to property insurance. Comparison shop, ask for discounts and most importantly, make sure you fully understand what you are getting for your hard earned money.
It could literally cost you the roof over your head.