Understanding Home Insurance: A guide to protecting what matters most

Your home is likely to be the most expensive purchase you are ever going to make - both financially, emotionally, and practically.

It is the place where you can feel safe and call your place. You are going to make a lot of memories, and you are going to be keeping your most valuable possessions here, too. So, protecting you and your home with the right insurance isn’t just a financial interest; it is also something that secures you.

If you are a first-time buyer, an experienced homeowner, or a landlord, understanding home insurance can be a useful thing to protect both your property and your own peace of mind.

What Is Home Insurance?

Home insurance provides financial protection for your home and its contents. It typically covers damaged or stolen property, and in many cases, will also provide temporary living expenses and liability protection. For most people who own a house, home, and contents, insurance is a necessary and worthwhile expense.

Home insurance usually consists of 2 main policies:

1. Buildings Insurance – Covers the physical structure of your home, such as the walls and roof

2. Contents Insurance – Protects items within your home, like furniture, clothes, and electronics.

There are different levels of each of these policies, some with specific items included. You can purchase either standalone or combined buildings and contents insurance policies. If you are buying your first house or are thinking about changing insurance providers, there are a lot of policies to look at.

Whether you are a homeowner or are about to become one, you should do your research and make sure you have the best value policy to suit your lifestyle.

Why Home Insurance Matters

It’s easy to brush off insurance as something you may not really need, until it is. While no one likes to think about worst-case scenarios like home damage or a break-in, the fact is that these things can happen and require a whole lot more than wishful thinking. Having a policy in place can prevent you from incurring monumental personal expenses in the wake of such devastating circumstances.

Take a look at a few of the most common situations where homeowners' insurance can be a godsend:

•Natural Disasters: Tornadoes, floods, hurricanes, and fires can cause significant damage to the structure of your home. Electing to protect your home with the right insurance policy can prevent you from being financially ruined.

•Theft and Vandalism: If your house gets broken into, your losses could end up amounting to thousands of dollars in electronics, cash, jewelry, and other valuable and irreplaceable possessions.

•Accidental Damage: If a guest slips on a wet floor in your home or your child accidentally throws a baseball through your neighbor’s window, that can result in a liability claim.

•Temporary Relocation: Most policies pay for the cost of temporary lodging if your home is not habitable due to damage.

Factors That Affect Home Insurance Premiums

There are several factors that insurance providers can use to work out your insurance premiums. Here are a few tips on how you can reduce them:

•Location: If your house is located in an area that has a higher-than-average crime rate or is prone to other risks, you should pay more for your home insurance.

•Construction of Home: If your home is old, or has been made using non-standard construction materials, it carries more risk.

•Home Security: Installing a security alarm, fire alarms, deadlocks, and more can have an effect on the insurance premium.

•Claims History: If you have claimed home insurance in the past, it can potentially mean that you’re more likely to do so in the near future.

•Rebuild Cost: The cost of rebuilding your home can potentially affect the building value.

How to Choose the Right Policy

Choosing the best home insurance isn’t about the lowest price; it’s about finding the best cover for you and your home. Follow these simple guidelines to find the best.

•House insurance: Do you need buildings, contents, or both? Like many homeowners, you probably need both.

•Items in your house: List any high-value items that may need additional cover.

•Exclusions: Every policy has exclusions, so you must know what is not covered.

•Cover Add-Ons: Consider optional covers like accidental damage, personal possessions covered outside the home, or home emergency cover.

•Online Quotes: Do not take the first quote you receive. Use a range of online comparison systems and insurance company websites to assess the quality of the insurance provider and customer reviews.

Common Myths About Home Insurance

Just like with any insurance, there are many misconceptions surrounding home insurance coverage. Here are a few of the most common ones:

•“I don’t need it because I rent”: Your landlord most likely holds a building insurance policy, but your personal property is your responsibility. Renters need content coverage.

•“All-natural disasters are covered”: Not all, as flood or earthquake coverage is typically an additional policy.

•“Market value is the same as replacement value”: The value of your home on the market (or for tax purposes) is not in sync with the amount you would need to rebuild your home in higher-priced construction markets. Always, insure for replacement value.

When to Review Your Policy

Don’t make the mistake of treating your home insurance as a “set it and forget it” decision. Life happens; things change, including your insurance needs. Here are some of the common reasons why and when you might want to reassess your coverage:

•You’ve done some major home renovations

•You’ve bought a lot of stuff (e.g., art, electronics, jewelry)

•You have new people living in your home (e.g., you start renting out a room)

•You move

A regular review will help you to avoid overpaying for coverage that you no longer need, or being underinsured in the event of a major catastrophe.

The Bottom Line

Home insurance can provide you with peace of mind when it comes to keeping your most valuable asset safe. But it is also a complex financial product that needs to be fully understood if you ever need to make a claim. As with everything, being prepared, monitoring your options, and understanding what you are covered for can go a long way to giving you what you need when disaster strikes.

Whether you are a first home buyer or simply thinking about what you are currently covered for, chances are, there is never a better time to secure peace of mind. Research your needs, understand what is available, and ensure that your home insurance does the trick.