Is Homeowners Insurance Required?
Laws don’t require homeowners insurance, but that doesn’t mean you won’t have to get it. If you want to get a loan to pay for your home, your lender will probably require homes insurance to protect their money. Home insurance is also usually required by condo groups or private communities.
Also, home insurance is a good idea even if your mortgage is paid off or you bought your home with cash. Most people can’t afford to rebuild or fix their homes if they get a lot of damage or they burn down. Even if you have the money to rebuild, it will cost you a lot less to buy homes insurance than to pay for it yourself.
How much does insurance for a home cost?
Homeowners insurance costs vary a lot depending on the amount of risk an insurer is taking on, the cost of building in the area, and other things. Insurance companies use complicated algorithms to figure out rates. These algorithms take into account a wide range of factors, such as your home’s size, age, location, health, and even the materials it was built with. Most of the time, it costs more to cover a bigger house than a smaller one because it takes more work and materials to rebuild. Most of the time, a newer home is cheaper to cover than an older one because there are less likely to be problems with it.
Data about past cases and the weather in the area also play a role. If a lot of claims have been made in your area over the years, your rates are likely to be higher. A home in a flood-prone area will cost more to cover, as will a home on the beach that is more likely to be damaged by wind, waves, and erosion. The same goes for houses in places where an earthquake, tornado, or other weather event is more likely to happen. Another factor is the rate of crime in the area and, by extension, the chance of a break-in.
Homeowners insurance rates can go down if they have deadbolt locks, burglar and fire alarms, and security systems. High-risk things like swimming pools, ponds, and trampolines, on the other hand, can make insurance rates go up. Keeping your credit score high can lower your rates by a lot. On the other hand, a past of homeowners insurance claims or even an aggressive pet can raise your rates.
Even with all of these factors, we found that some insurance companies were cheaper for the example home we used to rate them. We used a standard townhouse in Naperville, Illinois, which was about 2,400 square feet, had three bedrooms, two bathrooms, and was worth about $450,000. We found that the monthly rates for our example home ranged from $98 with Erie to $169 with Allstate. With Erie, at $1,176 per year, that’s a savings of more than $850 per year. With Allstate, the same house would cost $2,028 per year.
See the table below for a list of some of the savings that the home insurance companies we ranked offer.
What does insurance for a home cover?
A normal homeowners insurance policy will pay to fix or rebuild your home if it is damaged by fire, smoke, theft, vandalism, or bad weather like lightning, wind, or hail. A standard homeowners insurance also usually covers heating and cooling systems and their parts, like a furnace, water heater, or air conditioner, as well as ductwork, as long as the reason for the claim is covered by the policy. It doesn’t cover normal things like wear and tear, broken parts, or anything else that a manufacturer’s or home warranty would usually cover.
Also, personal property is usually covered by a normal homeowners insurance policy. This includes your clothes, bedding, tools, furniture, and anything else you have inside your home.
All house insurance policies have coverage limits that may or may not be enough to fix or replace your home and its belongings, and you can add extra coverage for some or all categories as needed. The key is to figure out how much coverage you need and shop around to find the best price for that coverage.
Most standard homeowner’s insurance plans have limits on how much they will pay out for expensive things like jewelry, artwork, or other collectibles, so you might need extra coverage for these. There are also services like protection against identity theft and extra insurance for home office tools.
Depending on where you live, you may need or be forced to have flood or earthquake insurance. Most standard homeowner insurance plans don’t cover either of these things. In some places, the insurance company you choose might not offer flood protection. If so, the National Flood Insurance Program, which is run by the Federal Emergency Management Agency, may be able to cover you. Policies from the NFIP are sold all over the country by independent dealers. Costs and requirements can be very different based on how dangerous your area is. On the FEMA website, you can use a live flood map to find out how likely flooding is in your area.
Also, homeowner’s insurance covers your extra living costs while your home is being rebuilt after a fire or other event that makes it unsafe to live in and forces you to move out. You would only get money back for things like a hotel room and restaurant meals that were on top of your normal living costs. With additional living cost coverage, you can also get paid for lost rent from a roommate who also has to leave because of the accident.
Lastly, homeowner’s insurance covers your personal liability if someone gets hurt in your house. For example, if a friend slips and falls in your home, this liability coverage could help pay for their medical and legal bills.
How much insurance do I need for my home?
As a general rule, you should have enough homeowners insurance to fix or replace your house and everything in it if it is totally destroyed. The main building, any sheds or structures like a garage, pool, or fence, as well as your furniture, clothes, and other belongings, could all need repairs. Figuring out how much it will cost to replace your house and everything in it is not as hard as it may seem. The Insurance Information Institute or a qualified insurance agent or realtor can help you through the process.
Multiply your home’s square size by the local building cost per square foot to get a rough idea of how much it would cost to rebuild it. For example, if your home is 2,200 square feet and the average cost to build is $80 per square foot, it would cost about $176,000 to rebuild it. Ask an insurance agent, a real estate agent, or an appraiser about building prices in your area.
The next step in figuring out how much home insurance you need is making a list of everything you own. Keep track of when and where you bought things, especially expensive ones. Take pictures and movies, and if you have receipts, keep them. If you need to make a claim, it will be easier if you have good documentation.
Don’t forget outdoor furniture and equipment, like a barbecue grill, as well as collectibles, musical instruments, hobby and sports equipment, items that are out of sight, like linens and silverware, and things that are in the attic or shed. Think about how much it would cost to replace each item with a new one of the same kind, not how much you paid for it at first. Replacement costs can change quickly, and even a two-year-old appliance might be much more expensive now than when you got it.
After you figure out how much it will cost to rebuild your home and make a complete list of your things, you’ll have a good idea of how much homeowners insurance you need.