10.14.24
Understanding Homeowners Insurance
Consumers home loans
We’d love to help you with a mortgage or home equity line of credit.
See what your homeowners insurance policy means—and when you might want supplement coverage.
One of the most important documents for homeowners is long, difficult to read and critical to understand. We’re talking about your homeowners insurance policy. For anyone with a mortgage, homeowners coverage is mandatory; for those who own their home outright and aren’t required to have a policy, it’s still a smart thing to have. Homeowners insurance protects you from unexpected events that could be financially crippling. Here’s a quick overview of what’s covered and what can be covered by supplemental insurance.
Basic homeowners coverages
Homeowners insurance includes four basic types of coverages. These include:
Coverage name | Commonly covers | Commonly excludes |
Dwelling and structures | Damage from things like fire, natural disaster or vandalism to the structure of the house and buildings like a garage, shed or gazebo | Damage due to flood, earthquake, or wear and tear |
Personal belongings | Appliances, furniture, clothing and electronics if stolen or destroyed by fire or other natural disaster | Cash, jewelry, antiques, liquor, collectibles and other high-value or hard-to-value items |
Liability & medical | Legal and medical expenses incurred if someone outside your household is hurt on your property or by your pet | Intentional acts of harm committed by you or someone in your household |
Loss of use | Living expenses if your home is inhabitable (for example, temporary housing, storage of personal items and meals) | Preventable damage, wear and tear, pest infestations, flooding, earthquakes |
Keep in mind that for most claims, you will have to pay the deductible out-of-pocket.
Supplemental endorsements
From the table above, you can see that some events and items are excluded from standard policies. However, you can still get coverage for many of them by adding endorsements. Endorsements provide supplemental coverage for things like:
- Scheduled personal property for high-value items
- Sewer/water backup
- Windstorm
- Identity theft
- Ordinance/Law to comply with current building codes
If you want flood insurance, a separate stand-alone policy needs to be purchased.
Reimbursement varies by level of coverage
Keep in mind, even if an item is included in your policy, its replacement cost may not be fully covered. Homeowners policies offer three kinds of payment for approved claims:
Level of coverage | How it pays out |
Actual cash value
|
According to the value of your home or item lost minus depreciation due to age or use |
Replacement cost
|
Covers the amount needed to repair/replace your home/belongings with similar items at today’s prices |
Guaranteed/Extended Replacement Cost | Rebuilding of your home even if the cost exceeds the policy limit |
Guaranteed/extended replacement cost coverage offers the most protection because it covers homeowners in cases where there are sudden increases in constructions costs. For example, sometimes after a natural disaster the prices of building materials can surge.
The level of reimbursement coverage can significantly affect the insurance premium.
Read the fine print
Policies vary—always read the fine print to see exactly what your policy does and doesn’t cover. Things in particular to pay attention to:
- Natural disasters that are covered or excluded
- Roof leaks and replacement
- Mold damage
- Water damage
- Plumbing issues
- Dog bites
- Tree removal
Managing the cost of homeowners insurance
The average cost of homeowners insurance in Michigan is $2,270—a sizeable chunk of any budget. To manage premium costs consider doing the following:
- Increase your deductible
- Avoid making claims for small issues
- Shop around 60 days before your renewal date
- Check out group discounts
One of your perks as a Consumers member is access to group discounts with Nulty Insurance.
Federally insured by NCUA
Consumers home loans
We’d love to help you with a mortgage or home equity line of credit.