Property Insurance Tips for First-Time Homeowners

Property insurance may seem like an unnecessary expense—until you need it.

On a daily basis, you probably won’t see the effects of covering your home and property with a monthly premium. But when lightning strikes, a storm blows off the roof, or your water line breaks, this type of policy will become essential.

The majority of Americans don’t have a substantial emergency savings fund to cover these types of major expenses out of pocket. Even if your paycheck leaves you with extra money at the end of the month, chances are you are paying for your children’s college tuition or other regular expenses.

With property insurance, you don’t have to worry that an incident threatening your home’s livability will leave you in financial peril.

But what does property insurance actually cover? The answer to that question will play a key part in helping you make the best possible policy decision for your first home.

What Does Property Insurance Cover?

Generally speaking, the coverage range of property insurance can be broken down into six categories:

1. Dwelling Coverage

According to the National Association of Insurance Commissioners, dwelling coverage describes the part of your insurance policy that “pays for damage to your house and to structures attached to your house.” It typically covers plumbing, electrical wiring, heating, and permanently installed air-conditioning systems.

In many ways, dwelling coverage is the center of your property insurance. Other categories below—such as personal property, loss of use, and other structures—are determined as a percentage of this coverage.

If your policy includes $300,000 in dwelling coverage, for example, your other structure coverage may be 10 percent (or $30,000) to cover structures on your property. You should review this part of your property insurance regularly with your agent to make sure that your dwelling coverage doesn’t drop below the price it would cost to replace your home.

2. Personal Property

Generally limited to 50 percent of your dwelling coverage, personal property covers any of your personal belongings in your home such as furniture, electronics, appliances, and even clothing. Typically, this coverage extends even to items outside your home, such as a child’s locker or college dorm room. Coverage includes:

• Damage to your personal belongings, especially resulting from causes like fire and smoke.
• Wind and hail damage. Adding a new roof on your home or increasing your deductible for this area can reduce your monthly premiums.
• Damage that results from water overflow of a sink or tub in your home, but only if that damage is sudden and accidental.
• Dog bites. Most dog bites are covered in your basic liability coverage. However, dogs who have a history of previous bites will often be excluded from that coverage.

Even property in your home that you might not consider essential until they’re damaged can be expensive to replace. Personal property coverage ensures that you don’t fall into financial distress due to unforeseen accidents.

3. Loss of Use

While the above two categories can help you should anything happen to your home, they don’t answer a major question: What happens if your home needs repairs and you have to move out on a temporary basis?

Loss of use coverage answers that question. It pays for the additional costs you incur if your home becomes temporarily uninhabitable during its repair or rebuild. As long as these living and housing expenses are reasonable, you will not have to worry about being responsible for any of these extra costs.

4. Liability

You and your family are legally responsible for any injury and property damage by others while they are in your home. Liability coverage helps to protect yourself against the potential costs that come with this responsibility should anything happen.

Imagine, for example, that someone falls down the stairs while visiting you. You may be held responsible for the damages caused. Personal liability coverage can pay for your legal expenses, as well as damages to the injured person.

Personal liability coverage is not dependent on the amount of your dwelling coverage. Most insurance policies provide a minimum coverage of $100,000 in coverage. If you feel that you need additional protection, you can increase the coverage to $500,000 or purchase an umbrella policy that adds further security.

5. Other Structure

You may notice that none of the above categories account for other structures on your property. What happens when your fence, detached garage, or shed gets damaged and needs repair?

Most insurance policies answer that question through their other structure coverage. Determined as a percentage of your dwelling coverage, it protects any additional structures on your property from the same type of problems and risks mentioned above.

6. Additional Home Coverage

In addition to the above, your insurance may cover a wide range of other areas. In most cases, you can add additional coverage to your existing policy in exchange for a higher premium. Some options include:

• Special coverage for contents, which protects your personal property in more ways than most basic coverage options.
• Contents replacement coverage, which pays replacement value for any of your damaged property.
• Additional replacement cost coverage, which helps you pay for a home rebuild if your basic coverage is not enough to cover the total cost.
• Valuable Items Plus, providing higher limits for special (and more expensive) property items such as jewelry, fine art, music instruments, and computers.
• Personal articles floater, which extends coverage amounts for the Valuable Items Plus coverage mentioned above.
• Coverage for water back-up, helping to cover costs of a sewer or drain problem as well as overflow and discharge from any sump pumps.
• Identity fraud coverage, which provides you to $25,000 to help you cover the cost of restoring your identity.
• Green home coverage, through which you can replace, repair, or rebuild your home with environmentally friendly materials.

Combined, these six categories provide relatively broad financial coverage should anything happen to your home and property. That said, insurance is not comprehensive—and it’s just as important to understand what it doesn’t cover.

What Property Insurance Does Not Cover

When deciding whether (and which) home insurance policy is right for you, understanding what isn’t covered is just as important as the alternative. Here are some of the items you will most likely remain liable for even after paying your premium:

• Mold and water damage that happens over a longer period of time than the sudden examples mentioned above.
• Sewer backup, unless you have purchased additional coverage as described in #6 above.
• Sinkholes and earthquakes, both of which are deemed “ground movement” and not covered by most basic policies.
• Termites, which are generally not covered because they are not considered a “sudden event.”
• Nuclear accidents and acts of terrorism, some incidents of which are actually prohibited by law for your insurer to cover.
• Injuries caused by certain types of dogs, particularly those deemed “vicious” due to past behavior.
• Flooding, which can be covered through separately purchased flood insurance.

Finding the Best Possible Insurance For Your Needs

The coverage may not be comprehensive. But you will find that the vast majority of incidents connected to your home and belongings are covered by property insurance.

While you can legally own a home without this type of policy, the financial hardship you could incur should something happens makes it a dangerous decision. Repairs to your home, loss of personal property, or legal liability could cost five and sometimes six figures. Unless you feel comfortable that you can quickly get this money should the need arise, a property insurance policy that can cover the expenses on your behalf is a better choice for financial stability.

That leaves you with finding a policy that works for your specific needs. And that’s exactly where we come in. If you’re a first-time homeowner looking for tips to find the best property insurance available in your area, contact us.