Your ultimate homeowners insurance guide

Buying a house is overwhelming. There is a lot to consider. Is it in the right neighborhood for you? Did your inspector really catch everything? Then, just when you think you have your stress under control, it’s time to buy homeowners insurance and you’re overwhelmed with new information and choices once again.

Or maybe you bought your home years ago and got the policy that someone recommended without really evaluating your options and you haven’t looked back since. It’s possible that you’re paying too much or that you’re not covered enough. 

 It doesn’t have to be like that. 

 VIU by HUB has put together this homeowners insurance guide for you so that you are prepared for your next talk with your bank, your realtor or anyone else who is helping you through the homebuying process. Think of it as homeowners insurance 101 – a basic course designed to get you up to speed. Don’t worry, you won’t be left alone once you finish reading. Your VIU by HUB Advisory Team can help you with any residual questions.  

What is homeowners insurance? 

Life is unpredictable. We hope that you’re very happy in your new home and that nothing ever goes wrong. Unfortunately, odds are that one day something will go wrong. That’s where insurance comes in. You pay a little bit each month so that if something goes wrong, you don’t have to pay for all of the repairs. Most policies even cover your possessions. Say a fire burns in your living room and your furniture is ruined. In this case your insurance carrier would pay to repair your room and replace your sofa and TV. 

Do I need homeowners insurance? 

Yes. Next question.  

Sorry to be blunt, but you will definitely want to be insured in the event something happens to your home and most mortgage companies require it anyway.  

What are the different types of homeowners insurance?

Basic form – Truth in advertising. This is the most basic type of homeowners insurance. These basic homeowners insurance policies will usually reimburse you for your home’s actual cash value and not much (if anything) else. These are really falling out of favor; a lot of carriers don’t even offer them anymore. That said, with a basic form, you’ll be covered for these perils:

• Fire or lightning
• Windstorm or hail
• Explosion
• Riot or civil commotion
• Aircraft
• Vehicles
• Smoke
• Vandalism
• Theft
• Falling objects

Broad form – These policies offer a bit more protection. You could get your home’s replacement cost back instead of its cash value and you will likely get cash value for your possessions. So, for example, you would get a few dollars for your 10-year-old couch, but not enough to replace it.  You’ll be covered for the same perils as you would be for a basic form with the addition of:

• Weight of ice, snow, or sleet
• Accidental discharge or overflow of water or stream
• Sudden and accidental tearing apart, cracking, burning, or bulging of a built-in appliance like a water heater or centralized air conditioner or heating system
• Freezing
• Sudden and accidental damage from an artificially generated electrical current, like power surges
• Volcanic eruption

Special form – Now we’re getting into it; this is what most people will want. If you file a claim under one of these policies, you can get your home’s replacement cost and the actual cash value of your possessions if they were damaged by named perils (the 16 things in the bullet points above). You’re covered for all perils unless they’re specifically excluded in your policy. Common exclusions are earth movement and flood. Other exclusions include nuclear hazards or war, not the kind of thing that most of us will need to worry about.

Comprehensive form – This is a special form taken to the next level. A comprehensive form policy differs in one important way: you will get the replacement cost of your dwelling and possessions. Instead of a few dollars for your 10-year-old couch, you’ll get a brand-new couch. This is a great choice if you have a lot of expensive items in your home.  

Mobile home form – This is a special form policy for mobile homes. It works the same way. However, it is important to note that your home is only covered when it is stationary. Most policies won’t cover any damages that occur when the home is in transit. 

Modified coverage form – Not every home fits the criteria above. If you live in a historic home, one with a high risk of loss, or if your replacement cost is higher than the market value of your home, you might need one of these policies.    

What is and isn’t covered by homeowners insurance?

While it’s not a comprehensive list, and policy coverage does vary, most homeowners insurance policies cover damage caused by: 

• Fire  (learn more about preventing fire claims)
• Wind 
• Hail  
• Explosions 
• Vandalism 
• Theft 
• Falling objects 

But they do not cover damage caused by: 

• General wear and tear 
• Agriculture or industrial work 
• Insects and animals  
• Mold 
• Sewer backup (but we can help with sewer backup coverage!) 
• Floods 
• Earthquakes 

Note what your policy says about your possessions (remember cash value vs. replacement value) and be sure that you get extra coverage for things like fine art, antiques, other collectibles or jewelry.

How are homeowners insurance rates determined? What are the factors that impact my homeowners insurance policy?

No insurance company is going to reveal their exact formula behind the price of their homeowners insurance premiums. It’s simply not possible to do so because every risk is unique. Here’s a list of items they frequently consider when calculating your homeowners insurance premium:

• The home’s replacement cost 
• The home’s age and condition 
• The home’s location 
• The home’s security and safety features 
• Your credit history 
• Your insurance claims history 
• Your marital status 
• The policy deductible 
• The policy’s amount of coverage 
• Additional types of coverage 

What mistakes do I need to avoid when buying homeowners insurance? 

• Assuming things – You need to know what is covered; not think you know. Talk to our advisory team to be sure that you understand your homeowners insurance policy.
• “Saving money” – Underinsuring your home or keeping a too-high deductible might save you money in the short term, but it’s not a good long-term strategy and you’ll likely regret it if you need to file a claim. 
• Choosing the wrong carrier – VIU can help you find the right insurance company for your circumstances. Trust an expert, not just your friends or family. Their circumstances are not your circumstances.
• Ignoring your geology – There are multiple states that are considered at risk for an earthquake. FEMA updates flood maps regularly. Check that you are covered for all weather in your area, not just the most common types.  
• Rushing your inventory – When you file a claim, your insurance company will need to know what was inside your home. Take the time before you run into an issue that requires a claim to do a thorough inventory and document your belongings.  
• Forgetting about your insurance – Your job doesn’t stop when you buy your homeowners policy. You need to be sure that it’s kept up to date when you go through life events like a remodel, installing a pool or garden shed or even getting a new dog. 

What are some common misconceptions about home insurance?

• Home insurance covers everything – Home insurance policies have exclusions and limitations. Take time to read your policy carefully to understand what is and isn’t covered.
• All natural disasters are covered – Standard home insurance doesn't cover all natural disasters. You may need separate policies or endorsements for events like floods, earthquakes or hurricanes.
• My home's value is automatically the coverage amount – The coverage amount for home insurance should reflect the cost to rebuild, not the market value. Be sure your policy covers the full replacement cost of your home.
• Old homes are cheaper to insure – Older homes can be more expensive to insure due to outdated systems and materials that may need specialized repairs or replacements. Talk to the VIU by HUB Advisory Team about your home to be sure that your policy fits your home.
• Filing small claims won't affect premiums – Frequent small claims can lead to higher premiums or policy non-renewal. Consider handling minor repairs out of pocket.
• Flood insurance is unnecessary for non-coastal areas – Floods can occur anywhere, not just in coastal areas. Consider flood insurance even if you live inland, especially if your area is prone to heavy rainfall or has a history of flooding.
• Home improvements automatically increase coverage – Home improvements can increase your home’s value, but you need to update your policy to reflect these changes. Notify your insurer about significant upgrades to maintain adequate coverage.

What is the most important part of homeowners insurance? What should I know when buying home insurance?

The key to insurance is truly understanding it and having a partner to guide you. This homeowners insurance guide is a good start but working with a broker like VIU is invaluable. Our advisors are experts in getting you the coverage you need and making sure your policies grow with you. VIU will work with you to determine how much homeowners insurance coverage you need. Call the VIU by HUB Advisory Team today to find the insurance that fits your life.