Why property owners need homeowners insurance
If you own the home you live in, you must have homeowners insurance – no exceptions. Are there any circumstances when you don't need this coverage? No.
Are there any situations when you could decline to buy it? In the real world, only one. If you bought your home for cash or paid off your mortgage, you could theoretically decline to purchase homeowners insurance coverage. Do you still need home insurance? Absolutely.
Should you believe it is financially wise to save $700 to $1,500 per year while leaving a home valued at $200,000 to $300,000 unprotected, you should consider reading many more insurance and financial articles in addition to this one.
Also, you may have furniture, clothing, electronics, jewelry, antiques, art work, precious memorabilia, and other valuable personal items that would also be unprotected. Fire, lightning, hail, wind, explosion, and numerous other events could render the value of your most important asset at $0.
If you are like most homeowners, you purchased your house with the assistance of a mortgage loan. Your home lender requires you to have hazard insurance up to, at least, the value of your mortgage loan. No exceptions.
Yet, you should protect your home up to its full fair market value (FMV). Should your home have a FMV of $250,000 and your mortgage loan equals $180,000, you have $70,000 of equity you should also protect in the event of a total loss. You should also protect – although your mortgage lender won't be concerned – your personal property up to a value you believe fair.
Should you own real estate that you rent or lease to others, you'll still need a landlord policy to cover the home and other structures on your property for covered losses.
In addition, you should purchase sufficient liability insurance on these properties, should the renter or a guest suffer injury while on your property, to protect you against all but the most unlikely loss amounts. You do not want an injured party to have a claim larger than your insurance amount and sue you, which might put your personal home at risk.
Events and hazards home insurance typically covers
In addition to the typical fire, lightning, and wind damage, there are many other hazards and events that you can include in your home insurance coverage that people sometimes overlook. You can choose to protect against the following:
- Vandalism and malicious mischief.
- Theft - not a missing home, but theft of your "stuff."
- Damage caused by sudden and accidental interaction with aircraft, vehicles, and smoke.
- Weight of ice, snow, or sleet.
- Falling objects.
- Accidental discharge or overflow of water or steam from plumbing, heating systems, or air conditioning.
- Personal property losses, even while you are away from home and have some of your "stuff" with you.
- Liability – accident or injury to others while they are on your property or in your home.
- Loss of the use of your home if it is inhabitable because of a covered loss or damage.
It's important to understand that there is no "one size fits all" home insurance policy. Unless you have a very modest home and few personal possessions, you will not typically select the basic level of homeowners insurance.
You have the choice of both the level of coverage you want and the ability to add features (in the form of "riders") to your home insurance policy to protect specific items and/or other more exotic possessions.
Also, remember, that most losses due to flood situations are not covered by your homeowners insurance. This coverage is provided by the Federal Flood Insurance program, which you must purchase if you live in "Flood Zone A or B", as required by most mortgage lenders.
If your neighborhood is not historically subject to flood conditions, your decision to purchase this insurance may be optional and may not be required by mortgage lenders. Since the cost is quite reasonable, however, you may still want to have this coverage should you face the ravages of a flood.
Think about what hazards you'd like to protect against and make an inventory of your personal property. In addition to writing down this information, use a camera to take pictures, if possible, to further substantiate any potential claims for loss. This makes it easier for your insurance company to pay claims and process your reimbursement requests much faster.
Finally, consider full "replacement" or ACV (actual cash value) coverage instead of just a dollar amount for your home insurance protection. Costs for repair labor and materials can sometimes escalate during your policy period.
Should you miscalculate your dollar values during such a period, you might face a shortage of insurance claim funds in the event of a major loss. Replacement or ACV coverage may eliminate this situation, which always seems to occur when you can least afford it.
See also: Tips on choosing home insurance
