Every year, 5% of households file a homeowners insurance claim.

This suggests that you’ll use homeowners insurance at least once during a 20-year period.

But if you’re a new homebuyer, you may not know if homeowners insurance is worth the cost.

Do I need homeowners insurance?

And what does homeowners insurance cover, anyway?

You’ll want to know the answers to these questions to make the insurance decision that’s right for you.

Do your due diligence and read our insurance guide for new homeowners.

It could save you from home-related financial difficulty down the road.

What Is Homeowners Insurance?

Your home is your most prized and expensive possession.

If anything ever happened to your property, it could cost tens of thousands of dollars in repairs.

That’s why homeowners insurance is there to help.

Homeowners insurance offers a financial safety net that protects homes, homeowners, and possessions.

At a base level, it’s similar to auto or medical coverage.

But since homes are more comprehensive than vehicles, the insurance is more comprehensive too.

In short, homeowners insurance covers damage to your home.

If high winds tear shingles off the roof, your insurance policy should cover the claim.

Homeowners insurance also provides liability coverage to people injured on your property.

Since there are some exceptions, we’ll want to inspect the overall coverage package.

What Does Homeowners Insurance Cover?

There are eight different types of homeowners insurance packages.

These all include unique coverage plans.

The average homeowner will use an HO-3 policy, also known as a special form policy.

An HO-2 policy provides coverage for 16 types of perils.

The HO-3 policy is a bit beefier, insuring almost anything that isn’t explicitly excluded in the contract.

Let’s start by looking at the peril coverage of an HO-2 insurance policy.

• Weather: Wind, hail, ice, snow, sleet, eruptions, and lightning.
• Vandalism: Theft, riots, smoke, and explosions.
• Home issues: Electrical malfunction, freezing systems, structural damage, and water overflow.
• Collisions: Damage caused by automobiles, aircraft, and falling objects.

For reference, wind and water damage are responsible for almost 50% of homeowners insurance claims.

Most insurance packages also include family liability insurance.

This kicks in if you’re sued over an injury that happens on your property.

For example, homeowners insurance will cover the medical and legal fees if someone slips on your icy walkway.

With an HO-3 policy, you have additional coverage for most things.

There are, as mentioned, a few exceptions. Homeowners insurance does not cover:

• Landslides, earthquakes, and floods
• Pollution and nuclear contamination
• Mold and pest damage
• Wear and tear

Many of these exceptions are covered by other types of insurance coverage.

You should know the weather and home risks in your surrounding area, so you can buy enough coverage for common risks.

For example, you can pay extra for an endorsement (also known as a rider) that adds earthquake coverage to your policy.

For more information, check out our guide on different homeowners insurance policies.

Do I Need Homeowners Insurance?

While auto insurance is required by law, the same cannot be said of homeowners insurance.

So do you need homeowners insurance?

If you’re going through a mortgage lender, the answer is yes.

There isn’t a legal requirement, but mortgage lenders won’t work with you without homeowners insurance.

It mitigates potential risk, like if your home loses value as the result of severe damage.

Lenders will take out a homeowners policy and add it to your mortgage should you stop paying for your own.

Once you’ve paid off your home, it’s your choice if you want homeowners insurance.

It’s often worth the cost alone just for peace of mind.

Personal liability is also a large factor.

Let’s say you have tree cutters on your property.

If the company is not insured, they could seek financial recompense should an injury occur.

How Much Homeowners Insurance Do I Need?

Mortgage lenders have their own insurance requirements.

It’s impossible to give an exact estimate of how much you need since the expectations vary wildly.

Just know that you’ll at least need to satisfy the bare minimum to take out a mortgage on any home.

But the minimum requirements only cover so much.

A good rule of thumb is to get enough coverage to rebuild your entire home.

Some homeowners make the mistake of insuring for its market value, which is often far less than an entire rebuild.

To come to this answer, figure out home construction expenses in your area.

With this information, you can calculate how much it would cost based on the square footage of your home.

Homeowners insurance also covers your possessions within the home.

Take inventory to estimate how much your personal assets are worth.

Usually, this is somewhere around 50% of your home-rebuilding coverage.

How To Buy Homeowners Insurance

Treat homeowners insurance like any other type of insurance coverage.

The quality of your insurer will have a massive impact on what’s ultimately covered.

Start your search by looking at the reviews of insurers in your area.

Of course, you’ll also want to get the best bang for your buck.

As you search, consider your overall budget.

You may have to raise or lower your deductible to find the premium you’re looking for.

Looking For Homeowners Insurance Coverage?

Do I need homeowners insurance?

The answer is an unequivocal “yes!” if you’re working with a mortgage lender.

But even without a lender, homeowners insurance safeguards your home, finances, and peace of mind.

If you’re in the market for a home, homeowners insurance is a must-have.

At Central Jersey Insurance Associates, our professionals can give you the homeowners insurance policy that best fits your needs.

Contact us and get in touch with our expert insurance brokers.