10.14.24

Understanding Homeowners Insurance

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Man in blue shirt holding up virtual house in his left hand
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.

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