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What Coverages Do You Really Need On Your Homeowners Policy?

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What coverages do I really need on my homeowners policy?

This past winter, my husband and I bought our first house!

We decided to take the plunge from renting a home to being homeowners when we both had steady jobs and we knew what area we wanted to settle down in. It was an exciting time full of unknowns! We had no idea what a learning curve there was for first time home buyers.

Between the endless paperwork, expensive closing costs, negotiations with the sellers, and trying to maintain our other obligations, we became overwhelmed very quickly. There wasn’t a manual to help us get through this confusing time, or even a map to tell us how long each step would take.

We were in the midst of closing around Christmastime, and so anxious to get into our home before the holiday! Lucky for us, we finally tied up all the loose ends just days before the 25th, and felt we had been handed the moon! Through all of this, we decided that:

  1. We wanted to live the rest of our lives in this home and never go through the home buying process again…
  2. There were so many unknowns about the process that we now had a grasp on. That was a win!

One of those unknown problems that we had to sort through was what coverages to include on our homeowners policy.

Our lending company took care of adding the policy payments into our mortgage breakdown, but before this could be done, we had to discuss coverages with our insurance company, talk about discount options, and provide verification for the start of the policy.

Thankfully, with a little research, it became clear that some coverages were absolutely essential (and required by our lender), but others were completely unnecessary. Here’s what we found:

First of all, there are 4 main types of insurance coverages that homeowners have the option to purchase:

  1. Dwelling – covers your actual home
  2. Liability – covers medical expenses related to injuries sustained on the property and some damages to the actual property
  3. Personal Property – covers the contents of your house
  4. Additional Living – if your home was destroyed, this would cover the expense of staying somewhere else while it was being repaired, and additional costs above your normal spending, such as eating out

Dwelling coverage is in place in case your home is entirely lost, or part of it is damaged – think fire or tornado type catastrophes. So make sure your dwelling is near equal to the cost of having to rebuild your home.

Select more coverage, and you’re overinsuring your home.

Select less coverage, and in a catastrophic event like those mentioned above, you’re going to be in a pickle.

This coverage is a must for any homeowner. It’s one of the main functions of homeowners insurance, and most claims are filed under this category.

Liability coverage is essentially in place to protect you from any unwanted lawsuits or medical expenses that might arise from an incident on your property. Even medical expenses from a dog bite can be covered!

You never know who and how an incident will happen on your property, so it’s best to get as much coverage as you think you’d need if the worst case scenario were to happen.

Personal property coverage includes the contents of your home. If you have items that are high-value in your home, get them appraised so you can include the value of these items in this coverage.

But check the limits for certain items – if you have a very high value piece of jewelry, for example, you might need to add on insurance for this rather than bundling it in your personal property coverage. If you don’t need appraisals, this coverage should include an estimate of how much it would cost to replace all the items in your home if it was lost in a fire, stolen, or destroyed in any way. Again, don’t overinsure and pay a hefty premium, and don’t underinsure and be disappointed later when you can barely replace just your furniture.

Try walking through each space in your home and taking pictures of your items, then add up the estimated values and there you go! This way, you also have a record of which items you’ll need to replace if your home was lost.

Additional living coverage is much like rental car insurance on your auto policy in the case of an accident. If your home needs repair or rebuilding, you’ll obviously need to stay somewhere else. This coverage will reimburse you for extra expenses while you’re living outside of your home.

Usually it’s recommended that this coverage be calculated as a percentage of your dwelling coverage, somewhere between 10-20%, depending on how many family members live in your home and would be displaced.

Some extra coverages that you might be offered include:

  • Earthquake and flood insurance, which is usually unnecessary if you don’t live in an area that is typically affected by these natural disasters
  • Sewer and drain backup coverage – only necessary if you foresee plumbing problems in your future, or have the financial flexibility to add this to your premium
  • Identity theft coverage – in the case that your personal information is stolen and used for identity theft, this extra coverage can help you recoup your losses

My husband and I declined all three of these extra options, because we live in a land-locked area, we have updated plumbing, and we use other means to protect our information from identity theft.

However, these options may be necessary for you depending on your situation, so make sure to do some research on whether or not you may need them before you shell out the cash.

If you’re buying a home, don’t worry if you’re feeling overwhelmed. Nearly all first-time homebuyers run into some level of stress along the way.

But, homeowners insurance is one area that’s designed to cover you for the future, and navigating it the right way now will allow you to focus on more pressing matters, like providing your realtor with the thousands of financial documents required for a loan, and can also help you avoid many other headaches down the road.

If you’re already a homeowner with a policy, check to be sure you don’t have unnecessary coverages that are hiking up your premium. If you do, remember, the goal is to stay covered without over-insuring. That way you have peace of mind while living in your home, without it breaking the bank. 

Happy “homeowning!”

Contributor’s opinions are their own. Always do your own due diligence before investing.

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