Is Buying Home Insurance Worth It?
Buying a home incurs a lot of unexpected costs, and a home buyer might be tempted to skip some elements in an attempt to save some cash. Home insurance is an element that might not be required if you are paying cash. You can also choose one of several policies. So, is buying home insurance worth it, and how much coverage do you actually need?
A home insurance (or homeowner insurance) is not to be mixed up with home warranty, which is a contract with a warranty company covering the wear and tear of specific elements of your home, like the HVAC system or appliances. On the other hand, a home insurance covers damages due to fires, hail, property crimes and certain types of water damage. It covers both the structure and the homeowner’s possessions.
1. Understanding home insurance
Homeowners’ insurance covers your home and your possessions in case of disaster. One thing to keep in mind is that the coverage of your policy depends on the cost rebuilding your home from the ground up would incur, not on its the market value. Your possessions are generally insured at 50% to 70% of the value of your dwelling.
If you are financing your home, the lender will most likely require that you purchase some form of homeowner insurance before you can close on your home. Many lenders require that you provide proof of having purchased at least one year worth of coverage prior to closing.
However, the type of home insurance you will purchase depends on you.
2. When are you covered by your home insurance?
Every insurance policy is different and choosing the one that is the most adapted to your needs can be an intimidating process. If you are over insured, you are at the risk of paying too much out of pocket. However, if you are under insured, you would be at risk of financial ruin in the event of a major disaster.
The most common forms of home insurance include coverage in the event of the following issues:
- Fire and lightning
- Damage from hail and windstorms
- Theft and vandalism
- Smoke damage
- Falling objects, like tree branches
- Damage from the weight of ice, snow, or sleet
- Frozen plumbing, heating, AC, or other household systems
- Vehicles (and even aircraft)
- Riots or civil commotions
However, some forms of hazard are not covered, notably floods and earthquakes. If your home is located in a zone at risk, you will need to purchase a separate insurance policy to be covered.
But the most important parts of home insurance is to be aware of the things that are not covered. For example, precious objects, like jewelry, are often only insured up to a certain amount. If some of your possessions are worth more than what the standard home insurance offers, you will have to cover them separately.
Extra coverage is often available for a premium depending on the value and location of your home. Don’t forget that your insurance policy goes up for each claim you make, so choose wisely.
Buying home insurance is always a good move and is often compulsory. However, in order to keep your cost low, a good policy is to have a comfortable emergency fund to cover anything not taken into account by the insurance, or smaller claims that would make your payments go up.