If a fire badly damaged your home today, would you be able to afford the repairs? Having home insurance helps you avoid being financially crippled in the event of damage or disaster — Fixr.com reported that the average cost of fire restoration can range from $3,000 – $40,000, with most homeowners spending between $2,500 to $11,900 on repairs.

Extreme weather and everyday wear can take their toll on your home, damaging things like roofing, siding, and windows – and that’s just the outside. Your day-to-day living will have an impact on the inside of your house too, with things like insulation, walls, and ceilings needing care over time. Inevitably, you will incur costs for one or more of these things so, for your own financial protection, this is where home insurance comes in.

Not only does home insurance cover the structural wellbeing of your home, it will also cover your personal belongings so you’re protected in the event of vandalism or theft.

While it is legal to own a home without homeowners insurance, investing your hard-earned money into such an expensive asset gives you even more reason to take on some type of protection. Often, mortgage lenders will require you to have some home insurance coverage in case of unforeseen damage or natural disasters, so in each case, it’s important to choose the right policy that covers exactly what you’d like it to.

Sleep a little sounder at night by shopping around for the best home insurance policy for you and your family. Give yourself some peace of mind and investigate the life insurance policies on the market today. We have some helpful tips below to make your search easier.

WHAT THE EXPERTS SAY…

We’ve teamed up with Certified Credit Union Financial Counselor (CCUFC)  Karen Smith. She has compiled a few helpful tips for you to get started on your search for the right homeowners insurance policy.

Who needs homeowners insurance?

If you have a mortgage or are taking out a mortgage to purchase a home you will want to buy homeowners insurance. In fact, most lenders require homeowners to carry an insurance policy in case the home is damaged.

Things to take into account when searching for a homeowners insurance policy

Call or visit multiple insurance companies and figure out who you feel comfortable with after speaking to an agent to discuss your needs. Make sure you get quotes before deciding and go with a company that you feel you can trust, as this will be something you will revisit as your insurance needs evolve.

The events and circumstances that homeowners insurance covers can vary, for example, flooding is not always covered. Make sure your insurance agent explains all of the situations that will entitle you to a claim and ask about things that are most relevant to you, for example, fire cover and tree damage if you live close to a forest or large trees or flood cover if you’re close to a river or lake.

Although agents will earn a commission on some products, you are not obligated to purchase everything they offer you and you are entitled to ask whether a certain product or add-on is sold on a commission basis.

Types of Homeowner’s Coverage

There are key sections of coverage in each homeowners insurance policy.

1. Property Coverage: determines how much the insurance company will pay for losses
   • Dwelling (Coverage A) determines how much the insurance company will pay for damage or destruction of the structure of the home
   • Other structures (Coverage B) is for garages or other structures on the property that aren’t attached to the home itself. Typically 10% of the insured home value (Coverage A)
   • Personal property (Coverage C) is for the contents of the dwelling. Typically limited to 40-50% of the dwelling coverage
   • Additional Living Expense (Coverage D) helps homeowners cope with costs if they are forced to stay in a hotel or rent for a time
2. Liability Coverage provides protection for the homeowner and his family if they are sued for negligence resulting in property damage or due to negligence
3. Medical Payments coverage is to reimburse nonfamily members for accidents that might occur on the premises
4. Replacement Cost provides for the difference between what the home is worth on the fair market and what it costs to replace the home

What coverages are most necessary?

With all the various kinds of home coverage available, it can be difficult to narrow down what type of policy will best fit your needs. Here, we break down the different types of homeowners insurance policies.

HO-1 – basic Coverage. Usually safeguards again 10 named Perils (ex. Fire/smoke, explosions, lightning, theft, hail/windstorms, etc). Many states ban these policies based on regulatory concerns over exclusions from coverage.

HO-2 – Broad Coverage. Typically covers not only your home’s structure but your belongings and sometimes your personal liability as well.

HO-3 – Special Form. Comprehensive coverage is designed to cover the majority of losses that are likely to occur to the average homeowner.

HO-4 – Tenant’s Form. Also known as Renter’s Insurance is designed to cover only belongings and personal liability – not the building structure.

HO-5 – Comprehensive Form. Typically covers more perils than the average HO-3 policy, and your personal liability is covered up to the limits you choose.

HO-6 – Condo Form. Designed specifically for condo owners and financially protects belongings and personal liability.

HO-7 – Mobile Home Form. Essentially the same as HO-3, but designed for mobile or manufactured homes.

HO-8 – Older Home Form. Designed to address specific concerns with coverage for older homes. Similar to HO-3, but with special adaptations to better suit older homes that have different coverage needs.

QUESTIONS TO ASK

Here are six basic questions to ask before buying or renewing a homeowners insurance policy:

1.     How much would it cost to rebuild my home in its current location in the event of a total loss? Your homeowners insurance policy should cover the cost of building a new home from scratch. In general, homeowners policies cover partial or total damages caused by fire, hurricane, hail, lightning or any other disaster listed in your policy. Flood and earthquake-related losses must be insured separately because both perils are excluded in standard homeowners insurance policies.

2.     How much is the personal property in my home worth in the event of a total loss? Your homeowners insurance policy should cover the cost of replacing all personal property (furniture, appliances, clothing) should it be stolen or destroyed by fire, hurricane or another insured disaster. Most companies provide personal property coverage equal to about 50 to 70 percent of the amount of insurance you have on the structure of your dwelling. The best way to determine if this recommendation is appropriate for your specific situation is to conduct a home inventory.

3.     How much liability protection do I need? Liability covers you against lawsuits for bodily injury or property damage that you, or your family members, cause to other people. It also pays for damage caused by your pets. The liability portion of your policy pays for both the cost of defending you in court and any court awards—up to the limit of your policy. You are also covered not just in your home, but anywhere in the world.

4.     What level of additional living expense coverage do I need? The Additional Living Expenses (ALE) provision is found in standard homeowners insurance policies. It pays for the costs of living away from home if you cannot reside there due to damage from an insured disaster.

5.     Should I buy a separate flood and/or earthquake insurance policy? Check with your insurance agent or insurance company representative to see whether you might need specialized coverage beyond your standard homeowners insurance policy.

6.     Do I qualify for any discounts? If you have smoke detectors, burglar alarms, and/or dead-bolt locks in your home, you can often get a premium rate discount. Ask your agent or company representative about discounts available to you.