When I sat for the CERTIFIED FINANCIAL PLANNERTM exam I learned way more than I ever wanted to about different forms of homeowner’s insurance (basic form, broad form, etc.) and will now pass the savings onto the consumer! Oh wait, I have listened to too many commercials. But my time loss is your gain as I now impart onto you my homeowner’s insurance knowledge in a nutshell.
If you own a home, you will likely need to buy homeowner’s insurance. Most mortgage companies require it. Homeowner’s insurance covers things like your home being destroyed or vandalized and provides liability protection if someone were to be injured on your property. You don’t have to have your house burn down before you can file a claim, either. Let’s say a storm knocks a tree down on your house, and an insurance adjuster determines that in order to make your house “livable” again, it’s going to cost $15k. You can file a claim to have your homeowner’s insurance company cover this cost.
Typically, a basic homeowner’s insurance policy will cover against these things, which are called “perils” by the insurance world:
- Fire
- Hail
- Lightning
- Windstorm (so, hurricanes & tornadoes)
- Theft
- Vandalism
- Explosions
- Damage from Vehicles or Aircraft
- Riots & Civil Commotion
- Volcanic Eruption
Notice that things like flooding and earthquakes are not on this list. These things are called “Acts of God” and are normally excluded from standard policies, but you can pay extra to have them added if you are in an earthquake or flood zone.
If you purchase the “broad form” coverage, you will also have protection against:
- Falling objects
- Weight of ice, snow, sleet
- Freezing of household systems like heating or air conditioning
- Sudden & accidental damage from artificially generated electrical current
Then there is “special form insurance” which covers everything basic and broad plans and adds protection against perils that are not listed. Basically, it will cover anything unless specifically excluded. Plus, this policy (which is the most common form) will cover attached structures, like a garage or deck. If you have unattached structures, like me (we have a small shed), then you may have to purchase additional insurance. In our case, we had to let our insurance company know that we built a shed.
Homeowner’s insurance also covers personal property (all the stuff IN your house). If you have something that’s really valuable, it may cost above and beyond the normal range of coverage to replace, is so you may have to add on a rider to the homeowner’s policy. Most policies have a standard low limit for jewelry, so if for example, you had a very expensive wedding ring, you might have to add a rider with adequate coverage to replace it.
These types of policies may include a form of “additional living expenses” or “loss of use” coverage. This means, if you are temporarily displaced from your home/apartment while it is being repaired, the insurance company would cover the cost of a hotel, food expenses, and other expenses.
Many times, you can bundle your home and auto (or renter’s and auto) insurance together to receive a discount. If not, you can shop around.
TLDR version: If you rent an apartment (or something else) and your building burns down, or someone steals your stuff, renter’s insurance gives you coverage to replace the possessions you lost. Homeowner’s insurance does the same thing for your home and both policies also provide liability protection if someone gets hurt on your property. It’s important to have adequate coverage in this area to protect against losses.
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