What is home insurance and what does a standard policy cover?
Congrats! Homeownership is an exciting time, but sometimes calculating all the necessary expenses beyond a mortgage can seem overwhelming. Some of your bills will likely fluctuate, like utilities. Others, like home insurance, will likely cost the same for longer periods of time. While different home insurance policies may vary based on risk, claims filed, repair costs, etc., having a policy in place is something we strongly recommend for all homeowners. So, what exactly is it and what does it cover?
We’ve asked our team of insurance experts to help us answer some common questions we hear about home insurance.
What exactly is home insurance?
A misconception many people may have about home insurance is that it only offers protection to the structure of your home. We’ll get into specific coverage details later, but let’s clear up the basics first. Home insurance is a package policy covering both damage to property and legal responsibility or liability for any injuries and property damage policyholders cause to others.1
Do I need home insurance?
Now that the offer you put in for a home has been accepted, it’s time to go shopping. In most cases, your mortgage lender will require you to purchase a policy prior to closing. Otherwise, they can purchase insurance for your home and “force place” it, which is commonly referred to as lender-placed insurance. Typically, lender-placed policies are substantially higher than if you, the borrower, purchase one independently.2
As your insurance experts, we’ve helped many people like you find the right plan for their budget and individual needs. We recommend comparing plans with multiple carriers to find the right plan before purchasing a policy. You may discover a great insurance company you have never head of or thought of using before!
What does home insurance cover?
A standard policy includes four essential types of coverages including:
- Coverage for the structure of the home
- Coverage for personal belongings
- Liability protection
- Additional living expenses
There are several types of policies which homeowners are entitled to choose from, but the HO-3 is by far the most popular. With a HO-3, the actual dwelling is protected on what’s called an open peril basis, meaning if the peril isn’t explicitly listed as excluded in your policy contract, then it’s covered. Also, with a HO-3, your personal property is protected on a named peril basis, meaning you have coverage for only those perils listed in your policy contract. These perils are typically:
- Fire or lighting
- Windstorm or hail
- Riot or civil commotion
- Damage caused by aircraft
- Damage caused by vehicles
- Vandalism or malicious mischief
- Volcanic eruption
- Falling object
- Weight of ice, snow or sleet
- Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance
- Sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system
- Freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or a household appliance
- Sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor or similar electronic component)1
What is not covered by home insurance?
It’s important to note that damage caused by certain events or perils may not be covered by home insurance or may require a separate insurance policy. For example, if you live in an area prone to earthquakes or flooding, it’s wise to invest in a separate policy to protect your property. Many California homeowners have earthquake insurance but may not have flood insurance. On the east coast, homeowners often choose to invest in separate flood policies but may not purchase earthquake insurance. If you’re not sure what type of policy you need, our licensed agents are standing by to answer any questions you have.
How is home insurance paid?
When borrowers purchase a home, mortgage lenders often require them to set up a mortgage escrow account to cover expenditures like home insurance, property taxes and sometimes homeowners association (HOA) fees. When due, the servicer then pays these bills on your behalf.3 If you prefer to pay them on your own, you might be able to cancel your escrow account, dependent on the type of loan you have and if you meet a certain criteria to do so
Is home insurance property tax deductible?
While some home-related expenses are tax deductible, home insurance is typically not one of them. Expenses like home mortgage interest payments, mortgage points and property taxes are often eligible for tax deductions. Expenses like fire, flood and home insurance usually do not qualify for credits or a deduction on taxes.
Who is Answer Financial?
As one of the nation’s largest and most reputable auto & home insurance agencies, Answer Financial has insured nearly 4 million homes and vehicles. We work with more than 30, top-rated carriers to save our customers an average of $479 a year on insurance.4
On our mobile-friendly website, shoppers can quickly compare rates and customize coverages from multiple home insurers in minutes. By simply entering your zip code and home address, Answer can search publicly available records like square footage and year built to deliver side-by-side comparison quotes from reputable insurance companies.
June 1, 2020
- 1. “Homeowners 1Insurance Basics,” Insurance Information Institute, https://www.iii.org/article/homeowners-insurance-basics
- 2. “Lender-Placed Insurance,” National Association of Insurance Commissioners, https://content.naic.org/cipr_topics/topic_lender_placed_insurance.htm
- 3. “How to Get Rid of Your Mortgage Escrow Account,” Nolo, https://www.nolo.com/legal-encyclopedia/can-i-rid-mortgage-escrow-account-pay-property-taxes-insurance-own.html
- 4. Results of a national survey of new Answer Financial customers reporting insurance savings in 2018.