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What Home Insurance Actually Covers (and Where You’re on Your Own)
Buying a home can be both an exciting and overwhelming experience, filled with lots of dollar signs and hand cramps from signing endless paperwork.
While it’s tempting to find ways to save during the process, scrimping on home insurance should not be one of them.
Whether you’re buying your first house or insuring your long-held property, home insurance is an important (and sometimes essential — we’ll explain in a minute) purchase.
Home insurance is a form of property insurance that covers a private residence. It helps protect your property and belongings against losses and damages, and provides some liability protection for accidents in or around the home.
In the event of something unexpected — say, your residence is burglarized or there’s a fire — home insurance helps you cover the costs of replacing your lost goods or repairing your property. (Hence, why it’s also known as hazard insurance.)
Note that mortgage insurance is NOT the same as home insurance. The former protects the lenders or investors if a borrower defaults on the loan.
It’s important to note that you’ll most likely have to pay a deductible before your home insurance benefits pay out. And, for the most part, you cannot deduct home insurance on your tax return.
While you don’t legally need a home insurance policy, most mortgage lenders require it before closing. Though once you pay off your mortgage, you can drop it.
But you know what they say: Better safe than sorry.
It would be great if home insurance policies universally covered the same things.
If only it were that simple.
Because homeowners in different parts of the country have different needs, policies and their covered hazards — more commonly referred to as “perils” in the insurance world — vary.
And depending on where you live, the cost of home insurance can vary widely. For example, properties that are susceptible to natural disasters (think: Florida and hurricanes) tend to have costlier policies.
Here are the main areas home insurance typically helps cover:
You’ll notice a lot of “typically”s and “may”s when researching insurance policies, which is normal; there is no *one* approach that works for everyone. That’s why it’s necessary to shop around and connect with a local agent who can help you tailor a plan specific to your needs.
The Insurance Information Institute (III) published a comprehensive chart listing 16 perils that home insurance often covers, depending on your policy type.
Home insurance policies include a variety of disasters, though, and (say it with me) coverage may vary.
Policies differ by state and insurance company, but there are eight main types of policies.
Now that you have an understanding of basic coverage, perils and policies, let’s look at the other, sometimes frustrating, side of home insurance.
Here are four common disasters that are typically not covered by home insurance:
Unfortunately, that’s not all. Here are some additional, often surprising things your home insurance won’t cover, including:
Water damage in particular seems to be a tricky issue. Depending on what caused the flood in your basement, for example, you may or may not have a case. If your water heater suddenly bursts, it should be covered. But if you neglected to fix that slow drip from your dishwasher for years, that’s on you.
Same goes for a leaky roof. If the damage is caused by a peril (the wind caused an otherwise healthy tree to fall on it), it should be covered, barring an exclusion in your policy. But if it’s a rotting tree you should have had removed long ago, it most likely won’t be covered. (There’s that “it’s the homeowner’s responsibility to maintain their property” bit again.)
To protect yourself, you need to do regular home maintenance, have a firm understanding of your home insurance policy and speak to a professional about adding any supplemental coverage.
When putting together your package, you’ll want to determine:
Ultimately, your home insurance needs boil down to you and your individual situation. Someone who lives in a new-build in Anytown, Indiana, will have a different policy from the person who lives in a 100-year-old house in Earthquakesville, California.
Talk to a local agent, and shop around for the best deal and coverage for your situation.
Kathleen Garvin (@itskgarvin) is a former writer and editor for The Penny Hoarder.
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