Homeowners insurance takes a bite out of your budget when you own a home. Laura covers ten facts you should know about home insurance so you get the most out of it, fully understand the coverage, and pay less.
Fact #2: Not every type of damage is actually covered
While a standard homeowners insurance policy gives you many protections, such as coverage for the structure of your home, your personal belongings, loss of use, and liability, it doesn’t cover everything.
Policies often state that for something to be covered, it must be “sudden and accidental.” That means if you’ve had a leaky faucet that caused damage over many months, it probably won’t be covered because you neglected proper maintenance.
However, even if they are sudden, certain natural disasters are never covered in a standard home policy, such as floods from ground water and earthquakes.
You can add earthquake coverage to an existing home or renters policy. But flood insurance must be purchased separately. You can learn more at floodsmart.gov.
Windstorms, including tornados and hurricanes, are typically covered. However, in some high risk areas you may have separate deductibles for damage caused by these disasters.
Unlike a typical homeowners deductible of $500 or $1,000, hurricane deductibles are usually 1% to 5% of a property’s insured value. For instance, if you have dwelling coverage of $200,000 and a 5% hurricane deductible, you’d pay the first $10,000 of damages.
Other types of perils that may not be covered, unless you add them to a standard home policy are mold and sewer backups.
If you have a home-based business—with customers who come into your home, special equipment, or inventory—it typically isn’t covered and requires a separate commercial insurance policy. You’ll also need a different type of policy if you turn your home into a rental or vacation property.
Fact #3: Some belongings may not be fully covered
It’s good to know that your valuable personal possessions are insured against disasters and theft under a homeowners policy.
It’s good to know that your valuable personal possessions are insured against disasters and theft under a homeowners policy. But what many people don’t realize is that certain types of items come with coverage limits or caps.
For instance, jewelry, watches, furs, silverware, electronics, and firearms are typically limited to one or two thousand dollars of coverage. If you have jewelry worth $10,000 that’s lost or stolen, you’ll come up very short.
Another protection you get with home insurance is that your belongings are covered outside of your home. If your laptop is stolen from your car, auto insurance won’t cover it—but your homeowners or renters policy will.
Perhaps you lose a diamond from your wedding ring, have luggage stolen on vacation, or have items in a storage unit damaged. You’re generally covered. However, the payment for off-premises claims is typically a small percentage, such as 10% of your coverage limit.
So pay close attention to the homeowners insurance limits on your possessions inside and outside of your home and consider adding a rider or endorsement to beef up your policy when needed for valuable items.
Fact #4: Home maintenance really matters
Insurance companies want to make sure your property is in good shape so deferred maintenance doesn't make your home unsafe or more vulnerable to damage. Additionally, if they find that damage occurred because you neglected to maintain your home, they can deny a claim.
So keep your trees trimmed, have regular roof inspections, and watch for any signs of leaks. If you ever see unusual spikes in your water bill that may indicate that you have a plumbing leak inside or outside of your home that should be located and repaired right away.
Fact #5: Your credit affects the rate you pay
If you’re a regular Money Girl reader or podcast listener, you already know that your credit history reaches its tentacles far into your financial life. Not only does it play a role in the interest rate you pay for credit accounts and whether you can rent an apartment, but it also affects your insurance premiums.
A 2015 insuranceQuotes study found that if you have fair or median credit, you pay 32% more on average nationwide for home insurance than someone with excellent credit. But if you have poor credit, your premium doubles and you’ll pay 100% more!
Only a few states currently prohibit insurers from using credit when setting home insurance rates. So in every state except California, Maryland, and Massachusetts, keeping your credit in tip-top shape will help you save a substantial amount of money on home insurance.
See also: Credit Score Survival Kit – a free tutorial to build excellent credit!