Is Homeowners Insurance Required?
Laws don’t require homeowners insurance, but that doesn’t mean you won’t have to get it. If you want to get a loan to pay for your home, your lender will probably require homeowners insurance to protect their money. Home insurance is also usually required by condo associations or private communities.
Also, home insurance is a good idea even if your mortgage is paid off or you bought your home with cash. Most people can’t afford to rebuild or fix their homes if they get a lot of damage or they burn down. Even if you have the money to rebuild, it will cost you a lot less to buy homeowners insurance than to pay for it yourself.
How much does insurance for a home cost?
Homeowners insurance costs vary a lot depending on the amount of risk an insurer is taking on, the cost of building in the area, and other things. Insurance companies use complicated algorithms to figure out rates. These algorithms take into account a wide range of factors, such as your home’s size, age, location, condition, and even the materials it was built with.
Most of the time, it costs more to insure a bigger house than a smaller one because it takes more work and materials to rebuild. Most of the time, a newer home is cheaper to insure than an older one because there are less likely to be problems with it.
Data about past claims and the weather in the area also play a role. If a lot of claims have been made in your area over the years, your rates are likely to be higher. A home in a flood-prone area will cost more to insure, as will a home on the beach that is more likely to be damaged by wind, waves, and erosion.
The same goes for homes in places where an earthquake, tornado, or other weather event is more likely to happen. Another factor is the rate of crime in the area and, by extension, the chance of a break-in.
Homeowners insurance rates can go down if they have deadbolt locks, burglar and fire alarms, and security systems. High-risk items like swimming pools, ponds, and trampolines, on the other hand, can make insurance rates go up. Keeping your credit score high can lower your rates by a lot. On the other hand, a history of homeowners insurance claims or even an aggressive pet can raise your rates.
Even with all of these factors, we found that some insurance companies were cheaper for the example home we used to rate them. We used a typical townhouse in Naperville, Illinois, which was about 2,400 square feet, had three bedrooms, two bathrooms, and was worth about $450,000.
We found that the monthly premiums for our example home ranged from $98 with Erie to $169 with Allstate. With Erie, at $1,176 per year, that’s a savings of more than $850 per year. With Allstate, the same house would cost $2,028 per year.
See the table below for a list of some of the discounts that the home insurance companies we ranked offer.
What does insurance for a home cover?
A typical homeowners insurance policy will pay to fix or rebuild your home if it is damaged by fire, smoke, theft, vandalism, or bad weather like lightning, wind, or hail. A standard homeowners policy also usually covers heating and cooling systems and their parts, like a furnace, water heater, or air conditioner, as well as ductwork, as long as the reason for the claim is covered by the policy. It doesn’t cover normal things like wear and tear, broken parts, or anything else that a manufacturer’s or home warranty would normally cover.
Also, personal property is usually covered by a standard homeowners insurance policy. This includes your clothes, bedding, electronics, furniture, and anything else you have inside your home.
All home insurance policies have coverage limits that may or may not be enough to fix or replace your home and its belongings, and you can add extra coverage for some or all categories as needed. The key is to figure out how much coverage you need and shop around to find the best price for that coverage.
Most standard homeowner’s insurance policies have limits on how much they will pay out for expensive items like jewelry, artwork, or other collectibles, so you might need extra coverage for these. There are also services like protection against identity theft and extra insurance for home office equipment.
Depending on where you live, you may need or be required to have flood or earthquake insurance. Most standard homeowner insurance policies don’t cover either of these things. In some places, the insurance company you choose might not offer flood insurance. If so, the National Flood Insurance Program, which is run by the Federal Emergency Management Agency, may be able to cover you.
Policies from the NFIP are sold all over the country by independent agents. Costs and requirements can be very different depending on how dangerous your area is. On the FEMA website, you can use an interactive flood map to find out how likely flooding is in your area.
Also, homeowner’s insurance covers your extra living costs while your home is being rebuilt after a fire or other event that makes it unsafe to live in and forces you to move out. You would only get money back for things like a hotel room and restaurant meals that were on top of your normal living costs. With additional living expense coverage, you can also get paid for lost rent from a roommate who also has to leave because of the accident.
Lastly, homeowner’s insurance covers your personal liability if someone gets hurt in your home. For example, if a guest slips and falls in your home, this liability coverage could help pay for their medical and legal bills.