No Dumb Questions
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No Dumb Questions
What does home insurance cover? | S2 Episode 1 | No Dumb Questions
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Welcome to the Season 2 NDQ premiere episode! Join Sara and Julia as they deep dive into home insurance! In this episode, they cover:
- What home insurance is
- How much do you actually need
- Why it’s a hidden cost of home buying
- How to save on this big expense
Enjoy!
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Disclaimer: This podcast is produced by Insurify and is intended for educational purposes only. We are not licensed insurance agents, and we do not constitute personalized financial or legal advice. Personal situations vary, and you should always consult a licensed professional before making financial decisions.
Welcome back to Notable Questions for Season Two. We are so excited. This is the podcast where we do straight talk, uncoverage, claims, and savings. And I'm Sarah, an associate editor at Insurify.
SPEAKER_02And I'm Julia, an economic analyst and insurance correspondent at Insurify and a newly licensed insurance agent. Thank you so much. So today we are here to talk about home insurance, which is something that I think a lot of homeowners maybe don't really understand. It's a complicated topic, so no shame there. Many people may not know what their home insurance policy actually covers. And a common assumption or more of like a generalization is that like it covers a house if something bad happens. Yes and no. You know, it's the reality is that coverage is a lot more specific than that.
SPEAKER_01Yeah. So yeah, so we're gonna talk about what does home insurance actually cover and the ultimate question of how to get cheap home insurance because home insurance is very expensive. Um, and home insurance is kind of considered a hidden cost when you're buying a home. So it's important to consider when you're looking to buy a home. So it's gonna be great for first-time home buyers, um, people getting a home insurance quote for the first time, or if you're trying to compare. Yeah. And it can be really good for people looking to move into a high-risk area, which we'll go over as we talk about home insurance and what it covers. And of course, anyone in general who's trying to understand their home insurance costs.
SPEAKER_02Yes, so true. So we're gonna cover a lot in this episode, but we are also gonna deep dive into a lot of this over the course of the season. So, in this episode, we're gonna kind of preview the major areas of coverage in a home insurance policy, what home insurance usually doesn't cover, um, how much home insurance costs, like you said, and of course, how to find affordable home insurance. So let's get to it. Let's do it. Amazing.
SPEAKER_01Okay, so overall, home insurance protects your home against perils or unexpected events, and it helps pay you for those damages. Unlike car insurance, it's not required by law, but it is mostly required by your mortgage lender. But even if you don't have a mortgage on your home, it's really good to have home insurance. Um, it's just a good investment to protect your home. So home insurance covers four main things. Yes, exactly.
SPEAKER_02So let's just briefly talk through these coverages that are included. So we've got your home's structure and other structures. So we're talking like physical structures built on your property. So that's like your residence, your home, which would cover damage to your house's structure. And then any like other not attached structures, think a shed, a detached garage. Yeah. Those would be two coverages included in the policy. And then, of course, your personal belongings, your personal property, items inside the home. And then another element of this is liability protection, which we've talked about a lot with regards to car insurance. With home insurance, it's about injuries or damage that you're responsible for or that happen on your property that you could be liable for. Yeah. And then the last is temporary living expenses, also sometimes called like loss of use or additional living expenses, which basically covers expenses that you get if you can't live in your home after a covered disaster.
SPEAKER_01Exactly. So these are part of a standard home insurance policy. You're always going to get these included in your policy, but these only cover what's called covered perils, and there's some common exclusions with flooding and earthquakes being the biggest ones. But typically they do cover fire, hail, theft, falling objects, wind with some exceptions, certain water damage, right, not flooding, and explosions. Yes. All right. I think it's time to dive deeper. Let's dive deeper. Cool. So dwelling coverage is probably the most important coverage. Like we mentioned, it covers the structure of your home, which includes your walls, roofs, floors, any built-in appliances and attached structures. Yes.
SPEAKER_02So some examples of covered perils or situations would be fire damage, uh, storm damage, mostly we'll talk about what might be excluded from that, fallen trees, and lightning strikes. Those are all classic inclusions.
SPEAKER_01Yeah. So lenders or mortgage lenders, right, will require home insurance because they want to protect their investment in their property. Um, because rebuilding a house can cost truly hundreds of thousands of dollars. Yes. So in general, you want to follow the 80-20 rule, which says you want to insure your home for at least 80% of its total replacement cost. Otherwise, your insurer might not fully pay out your claim.
SPEAKER_02That is a really important clarification to actually want to focus on, which is that your insurance coverage should be based on the rebuild costs, not necessarily the market value of your home. So a common limit you'll see is $300,000 worth of home insurance, right? Um, but that doesn't mean that's the purchase price of the home, which includes the price of the land. You want to talk about the replacement cost of what it will cost dollar for dollar to rebuild your home if you needed to.
SPEAKER_01Exactly. And then kind of other part of that is other structures. So this is anything that's like detached from your house. So if you have an attached garage, that's under your dwelling. Exactly. Other structures is if you have a detached garage, a shed, a pool, the stipulation is it's not attached. Exactly. Yeah. All right. So the next biggest one is gonna be your personal property coverage. So this is like the belongings inside your home. So it's your furniture, electronics, clothing, kitchen items, and appliances not balanced to the home. Yes.
SPEAKER_02And very similar. Um, often the perils or situations that your policy covers for the structures are gonna cover the contents as well. So we're talking theft. We're talking fire damage, storm damage, and again, certain types of water damage. However, it does not cover normal wear and tear or damage from negligence.
SPEAKER_01Exactly. And actually, interestingly, it can cover belongings that are even outside of the home. So if your laptop is stolen from your car or your luggage is stolen while you're traveling, um your personal property can kick in to help cover that.
SPEAKER_02Yes, I always forget that that is included. So another important thing, really, with every kind of coverage is the coverage limit. You gotta make sure you have enough for structure and for the contents. So expensive items, things like jewelry, collectibles, artwork, valuable paintings, things like that, you might need to have additional coverage or an endorsement for on a policy to have enough coverage for.
SPEAKER_01Exactly. Next, liability coverage. So this protects you financially if someone gets injured on your property and it helps to cover like legal costs if someone sues you.
SPEAKER_02Yes, exactly. So some common examples of like what could trigger this kind of coverage, right? Um, a guest slips on an icy walkway while at your house. It's not your fault. Sometimes things happen, right? Um, maybe a dog bites someone while they're at your home. A child accidentally damages someone else's property. Those are all examples of something that liability protection could help cover.
SPEAKER_01Exactly. So liability coverage matters because lawsuits and medical bills are very expensive. Yeah. And it protects you from paying those costs out of pocket.
SPEAKER_02Exactly. So the last coverage that we're gonna chat about is loss of use coverage or additional living expenses, which applies when your home becomes temporarily unlivable due to a covered event specifically. So that could mean smoke damage that makes your home uninhabitable. Maybe a tree falls on a roof and there's now a big hole in the roof and you can't live there anymore because the rain's coming in. So some examples of covered expenses under this coverage would be hotel stays or short-term rentals, um, any increased food costs, so above what you might normally pay, and temporary housing.
SPEAKER_01Exactly. So this coverage helps maintain like basic living conditions while repairs are made, and it's up to the policy limits. So it's typically like a percentage of your dwelling coverage. And it only applies if the home is unlivable, not simply if you'd just rather not live there while repairs are being made. Exactly.
SPEAKER_02And important clarification.
SPEAKER_01Yes.
SPEAKER_02All right, so let's jump into what home insurance doesn't cover. So there are some really important exclusions that we need to chat about to make sure you know that you have the coverage for what you need.
SPEAKER_01Exactly. So the two biggest ones are flood damage. So that requires separate flood insurance. You can get this either through a private insurer or the NFIP, which is a government program. Um, and earthquake damage. Um, this typically requires a separate earthquake coverage. Occasionally, wildfire damage and wind damage, hurricane, hail, these are typically covered, but in high-risk areas, you might need additional endorsements or you might have an additional deductible. Um, so that's the amount that you would pay before your policy kicks in, similar to the car insurance deductible.
SPEAKER_02Yeah. And another common misunderstanding is that home insurance does not cover normal wear and tear, right? So an example of that would be, you know, an aging roof. It's just, it's getting older. It maybe is going to need repair as nothing specifically has damaged it. Yeah. It's just getting old. Um, outdated plumbing, um, long-term maintenance issues, maybe negligence-based damage. Yeah. Um, those are not going to be covered under your home insurance policy.
SPEAKER_01All right, let's get into how much home insurance actually costs. Yeah, important stuff. Okay. So the big question, how much does home insurance actually cost?
SPEAKER_02Yeah. So just like we talked about with car insurance many times, there are a number of factors that influence how much home insurance costs for you specifically, right? So some key factors that influence home insurance premiums are the location, right? Where you live, a very big one. Um, but that can include little things like the distance to a fire station or a fire hydrant from your home, um, the risk of theft or crime in that neighborhood, and of course, weather risks, which can vary by region. Um, and then property value, of course, how much it's gonna cost to rebuild your house and the deductible amount that you select, and of course, the coverage limits that you choose.
SPEAKER_01Yeah. Yeah. So home insurance, like car insurance, varies by individual and area. Yes. Right now, according to Insure Fight data, the average cost of home insurance is $2,948 per year.
SPEAKER_02Yes. But as you just said, that is going to vary. So definitely take that with a grain of salt and always grab a quote. Yeah. So some of the ways that look it can vary by location. I think we can see in if we look at a few different states, right? So, like, what does this look like actually across the country? So, for example, we talked about Florida even regarding car insurance, right? So in Florida, home insurance premiums on average are higher, to no one's surprise. Yes, mostly due to hurricane risk. Um, you know, it's right out there in the southern Atlantic. It's the usually the first thing that gets hit. So the average cost of home insurance in Florida is $8,292 a year. So that is much higher than the national average. Um, and that is also the most expensive state for home insurance, according to Insurify's recent home insurance report. And in California, the average is a lot lower. Right now, it's $2,455,000 a year. However, due to some of the recent extreme wildfire damage that we've seen, especially in the southern part of the state, that might be increasing as the state kind of weighs more insurance rate increases in order for insurers to be able to do business in that state. And then looking at Wyoming, where there's a much lower risk, yeah, natural disasters, the average rate is well below average at 1,929 per year. So there are a number of factors outside of just that that can influence rates. But when you look at it on a state level, you can see some of those patterns.
SPEAKER_01Exactly. So this is why it's super important to get a home insurance quote when you're considering buying a home.
SPEAKER_02Exactly.
SPEAKER_01Because imagine if you want to buy a home in Florida, that's a hidden cost of almost like $8,500 per year minimum that you could be paying. So it's just important to get multiple quotes, compare multiple options to try and get the cheapest option for your home with the best protection.
SPEAKER_02Yeah, don't be surprised. Don't be surprised. Exactly. So speaking of not being surprised, we definitely encourage you to compare home insurance quotes online before you sign on the data line and buy that house, or even when you're just exploring costs in a new area that you're interested in moving to. And some of the reasons why you want to do that are because prices vary significantly between home insurance companies, not just where you're living or why, you know, the risk in that area might be different. Um, and insurers judge risk differently. So, and coverage options between insurers can differ. So that alone is a really great reason to get a quote.
SPEAKER_01Exactly. And the savings strategies are actually going to be very similar to car insurance. So you want to raise your deductible to what's affordable to you, of course. Um bundling your home and car insurance can give you a discount on both. So true. Um, improving your home safety features. So that's adding in alarms, and that's adding in sprinklers, or you know, green home features. So that could be solar panels, um, it could be energy efficiency features, stuff like that. And then, of course, comparing three to five quotes to try and find the best one. Yes, great practice. All right, let's get into some frequently asked questions. Perfect. All right, here are some FAQs.
SPEAKER_02Let's do it.
SPEAKER_01Let's do it. Okay. So does home insurance usually cover mold?
SPEAKER_02No, not usually. Um, unless mold results from a covered peril like a burst pipe, usually you're not gonna see coverage for that. Yeah.
SPEAKER_01Is hazard insurance the same as homeowner's insurance?
SPEAKER_02No, hazard insurance is not the same as homeowner's insurance. It's a component of your home insurance policy. How much home insurance is required for a mortgage? So you want to have enough home insurance to cover the replacement cost, and your lender will usually tell you how much you need.
SPEAKER_01But ideally, like 100% if you can't?
SPEAKER_02Ideally 100%. Yeah, and definitely 80% or more.
SPEAKER_01Yes. How high should your deductible be on your home insurance?
SPEAKER_02So $1,000 is the standard deductible that you'll see. Um higher deductible means a lower premium, but also a higher upfront cost out of pocket if you need to file a claim. But usually you're able to adjust that amount to suit your budget.
SPEAKER_01Yep. What are examples of commonly covered and commonly not covered home insurance situations?
SPEAKER_02Great question. Um, so super quick um commonly covered situations are fire and smoke damage, um, wind and hail, unless you're in a super high-risk area, you might not see that. Um, and then theft and vandalism. And then some commonly not covered things are flood damage and earthquake damage. Awesome. You did great. Thank you so much.
SPEAKER_01So, overall, home insurance protects four-ish main areas. Okay. Perfect. Yes. So it's your home and other structures. Yes. Your belongings, your liability, and temporary housing. And in general, it protects you and your home and your mortgage lender financially. Yes.
SPEAKER_02And another key factor, home insurance policies only cover specific events. And flood and earthquake protection usually requires separate coverage.
SPEAKER_01Yeah. So shopping for home insurance quotes can help you lower your rates, just like car insurance. And, you know, increasing your deductible, looking for bundling, and looking for other discounts can really help you get a cheaper rate.
SPEAKER_02Yes, so true. And we really want to encourage our listeners to read through your policy to try to understand your insurance policy before you need to file a claim. That can just bring you so much peace of mind. Exactly. Yeah.
SPEAKER_01Thank you for tuning in today for the season two premiere of No Dumb Questions. We have lots more home insurance information coming your way soon. If you want to compare quotes, check out the link below. And until next time, stay prepared and protect your wallet.
SPEAKER_00You're listening to No Dumb Questions, an Insurify podcast. This content does not constitute personalized financial or legal advice. This podcast is written, produced, recorded, and developed by Sarah Getman, Julia Taliessen, Riley Hines, Sidney Harrell, and edited by Angelica Coleman. Compare insurance quotes by clicking the link below.