Homeowners need to ask themselves what would happen in the event of a fire, burglary, or any other unforeseen damage to their home or personal belongings. What would they be facing if they did not have the financial protections of homeowners insurance? Although homeowners insurance isn’t required by law, almost all mortgage companies are going to require proof of homeowners insurance before providing a loan for a residential property. Even if you no longer have a mortgage it’s a smart investment to purchase homeowners insurance.
The top 3 risks for not having home insurance are: No protection for your property, no liability protection, and you pay out-of-pocket for damages.
No Protection for Your Property
Without a homeowners insurance policy, homeowners would not have the protection for loss of their property or personal belongings due to accidents, fire, theft, or a disaster. A standard homeowners insurance policy will cover the cost to repair or rebuild your home in the event of damage to the exterior or interior of your home. Be aware that standard policies may not cover your home for things like earthquakes or floods. This may be something to consider depending on where you live. Most policies will also cover any detached structures such as a garage or shed. This will generally be around 10 percent of the insurance coverage that you have for the structure of your home. It’s important to purchase enough insurance to be able to rebuild your home should something happen.
A standard policy will also help pay the cost of replacing personal belongings such as furniture, appliances, valuable artwork and jewelry. –Almost anything contained in your home. This can be between 50-70 percent of the coverage you have on the structure of the home. It is important to take inventory of these items to determine how much coverage you will need. This inventory list will be a valuable reference tool should a disaster strike and you need to file a claim for your personal items.
There are different levels of protection that can be purchased to protect your home. Actual Cash Value, Replacement Cost and Guaranteed (or Extended) Replacement Cost/Value. Determining which is best for your individual needs should be discussed with your insurance agent.
Actual Cash Value – This will cover the cost of the house and your belongings minus the depreciation for personal items (current value of the item, not what you paid for them).
Replacement Cost – This will cover the actual cash value of rebuilding or repairing your home and replacing your personal items without any depreciation.
Guaranteed (or Extended) Replacement Cost/Value – Some experts believe all homeowners should purchase this type of policy. It is the most comprehensive and will pay whatever it takes to repair or replace your home at current prices. Some insurers will offer Extended policies that can pay up to 20-25 percent above your limit.
Seek your agent’s advice to help you decide what will be best for your individual situation.
No Liability Protection
Without Liability Protection, you won’t be covered against lawsuits for bodily injury or property damage that you, your family members, or even pets may cause to other people. This could produce financial hardship if you or someone in your family needed to defend themselves in court. Liability Protection will not only cover the cost of defending you in court, but it will also pay for any awards granted by the court, up to a set limit as stated in your policy. According to the Insurance Information Institute, liability limits generally start at around $100,000, but experts suggest having a discussion with your insurance agent to see if you may need a higher level of protection that can be gained through an umbrella policy.
Policies can also provide no-fault medical coverage. If someone is injured in your home, they’ll be able to submit medical bills directly to your insurance company. These medical expenses can be paid without filing a liability claim on you. This will not, however, pay medical bills for your family or pets.
You Pay Out-of-Pocket for Damages
It has probably become painfully obvious that if you were not to have homeowners insurance you would be paying for everything above out of your own pocket which could amount to hundreds of thousands of dollars and more. Another expense that some people might not have considered is what do you do if you are left with no place to live after your home has been damaged. Most standard homeowners policies include Additional Living Expenses (ALE). This will cover the additional costs of living away from home while your home is being repaired or rebuilt. This would include things like hotel bills, restaurant meals, and other incidental costs. But be aware that there are set daily allowances for what you can spend and most likely time limits while your home is being rebuilt. If you rent out part of your house, ALE will also cover the lost rent after your house was damaged or destroyed.
Lastly, homeowners insurance will not cover everything that might happen to your home. These would include flooding (natural or backed up pipes), earthquakes, landslides, animal infestations, mold, wear and tear, neglect, power outages and even war/ You may be able to purchase separate insurance coverage for some of these things like earthquakes and flooding.
Don’t take any risks by not having homeowners insurance and be sure to talk to your insurance agent about what type of coverage is going to be best for your individual needs.
Disclaimer: This blog post is meant for general informational purposes only and may not reflect your specific policy.