What exactly is home insurance? Well, to break home insurance down to the very basics:
Home insurance covers everything from your home to your personal belongings, liability protection, and additional living expenses. It may also protect more than just your house, like buildings not connected to the house itself. This includes structures such as garages, fences and sheds. The most common thing home insurance does is gives you protection for when you have wind and hail damage to your roof.
There are 2 very important types of coverage to understand. These can be the difference between the insurance company paying 100% of the cost to pay for an insurance claim, minus your deductible, versus just getting a percentage covered and you having to pay a majority of the cost out of your pocket. These are called Actual Cash Value and Replacement Cost. Actual Cash Value covers the cost to replace belongings or the house, but takes into account depreciation. Replacement Cost does not take into account depreciation.
In addition to understanding the general coverage types, it is very important to understand what a deductible is and how it works. A deductible is the initial amount you are responsible for paying before your insurance company pitches in for an approved claim. In general, the higher your deductible, the lower your overall cost. Your deductible will either be in the form of a dollar amount or percentage of your total home insurance value. Home deductibles typically range from $1,000 to $5,000. If it is a percentage, it will usually be anywhere from 0.5% to 2% of your dwelling coverage (meaning if your home is insured for $250,000, a 1% deductible would mean you are responsible for paying $2,500 as your initial portion).
Roof Claim Examples:
If you have a hail claim on an 9 year old roof that costs $15,000 to replace here is what you could expect:
- Replacement Cost
- Your Cost: $1,000 deductible
- Insurance Company Cost: $14,000
- Actual Cost Value
- Your Cost: $1,000 deductible + $8,000 depreciated value = $9,000
- Insurance Company Cost: $6,000
When choosing your insurance needs, it is important to find a trusted agent that takes the time to customize your policies to fit your exact needs and educate you about your coverages.
Pro tip: Use your phone to take a quick walk-through video of your entire home and closets once a year or when you move into a new home to make sure if you have a major claim, you have easy proof of what is in your home.
Next times someone asks, “What exactly is home insurance,” you can answer!