What is homeowner’s insurance?

Homeowners insurance provides coverage to repair or rebuild your home after events like fire, smoke, theft, vandalism, a falling tree, or damage caused by weather such as lightning, wind, or hail. Most standard homeowner’s insurance policies also cover furniture, clothing, and other possessions. In addition, they cover medical expenses and legal fees if people other than you, your family, or anyone else not living in your home is injured on your property. The same guidelines generally apply to renter’s insurance, as well as policies for condo and mobile homeowners. 

Most standard policies will also provide coverage for outbuildings on your property, such as a garage, barn, or shed, along with outdoor grills or fireplaces, swing sets, walls, and fences. A swimming pool or other recreational equipment may also be included, but higher-risk items such as these may require additional coverage. 

Additional items that may not be included in a standard policy are artwork, jewelry, or other collectibles that are worth more than standard coverage allowances. This is one reason it’s important to read and understand the limits of any policy you’re considering and purchase additional coverage when necessary.

Most standard home insurance policies don’t include earthquake and flood coverage. These types of coverage are generally available at extra cost, but all insurers may not offer them in all areas.

Depending on your occupation, interests, and circumstances, you may want to consider optional coverage for home office, specialized equipment or musical instruments, or high-end audio, video, or computer systems. Identity theft, or data loss coverage is also an option. 

To determine whether you need additional coverage beyond what’s included in a standard homeowners insurance policy, start with the most obvious factors. If you live in or are thinking about buying a home in an area prone to earthquakes, wildfires, or extreme weather, look for a policy that covers those events.

Next, think about what it would cost to replace major items such as a furnace, a water heater, a roof, or even your entire home. Talk to an independent insurance agent, call insurance companies directly, and check company websites for guidelines. Take an inventory of your possessions, including your vehicles, artwork, and other valuables. Consider what it might cost to live with relatives, in a hotel, or in a rental unit while your home is being repaired or rebuilt.

A basic rule of thumb is to make sure you buy enough coverage to replace your home and its contents, as well as to cover additional living expenses if you must move out. Be honest in your assessments and make sure that any policy you consider is sufficient.

What are the Types of Homeowners Insurance?

There are two basic types of homeowners insurance: actual cash value policies and replacement cost policies. An actual cash value policy factors in depreciation and inflation, meaning that reimbursement for appliances and upgrades made to a kitchen ten years ago, for example, would be paid at some percentage of their original cost. A replacement cost policy ensures that items are replaced with comparable new ones without accounting for depreciation or inflation. 

An actual cash value policy could leave you short of funds to rebuild your home in the event of a total loss. Many factors are at play here, from how long you’ve owned your home, to fluctuations in property values, to changes in building codes and material and labor costs. 

For example, rising property values could make your home worth several times more than when you bought your policy, with corresponding increases in material and labor costs. Stricter building codes may require additional and more costly materials than those used when your home was originally constructed. In addition, some older homes may have been built using materials and methods that are no longer widely used and are consequently expensive to replicate. Walls of plaster and lath, for instance, require more labor and materials than modern drywall. If you want to recreate your home as it was, you’ll have to account for these additional expenses.

For these reasons, every insurance industry expert recommended purchasing a replacement cost policy if you can afford one. 

How Do I Get Homeowners Insurance?

Home insurance is available through a variety of sources, including company websites, toll-free telephone numbers, and independent or dedicated local insurance agents. Major home insurance company websites are a great place to begin your search and generally have a wealth of information about standard and optional coverages. Many also have estimating tools that can give you an idea of what your premiums will be once you enter some basic information about yourself and your home.

While it’s a good idea to compare coverage and rates from different companies using these tools, insurance industry recommended doing additional research online. For example, most provincial insurance departments offer websites with useful information, including provincial requirements, licensing regulations, buying advice, and consumer complaints. 

Even with all the resources available online, it’s a good idea to work with a local agent or insurance professional. Policy details can be hard to decipher, and getting the right coverage is critical to avoid a costly mistake. Listings include license numbers and expiration dates, so you know the agent is in good standing. 

While an agent can help you navigate policy coverages and exceptions, it’s important to do your homework and ask the right questions to make sure your coverage is sufficient. For example, some policies may limit coverage for a toilet overflow if it occurs suddenly or is deemed to be the result of a slow leak caused by poor maintenance. A weather event can present even thornier issues and leave you without the coverage you were expecting.

Is Homeowners Insurance Required?

Homeowners insurance isn’t required by law, but that doesn’t mean you won’t be required to get it. If you plan on financing your home, your lender is most likely going to require homeowner’s insurance to protect their investment. In addition, condominium associations or private communities typically require home insurance. 

That said, even if your home is paid off or you paid cash for it, home insurance coverage is a good idea. Most homeowners can’t afford to rebuild or make substantial repairs if their home is heavily damaged or destroyed. Even if you have the funds, a homeowners insurance policy costs a lot less than rebuilding out of pocket.