What New Homeowners Should Know About Homeowners Insurance

Tim Boyer's picture
Keeping your home safe with the right insurance

As a new homeowner, understanding and choosing your homeowners policy is an important step in becoming a new home owner and protecting yourself and your family. Here are the basics you need to know; a true-story warning about the claims process; and, some recommendations on insurance companies that come highly recommended toward protecting you and your family.

Top 5 Questions Asked by New Homeowners

Do I really have to have my home insured?---While having an insurance policy is not required by law, in most cases a bank or other lending institution will not even consider processing your loan to buy a home without proof of insurance to show that both you and they are protected in the event of a home disaster. However, before purchasing an insurance policy, be sure to check with your bank first in case they have specific coverage requirements that may not covered by the policy you are considering.

Who has the cheapest home insurance?---The national average is about $101 per month. According to a recent review of homeowners insurance companies by the staff of This Old House, providers Amica, Lemonade, and Travelers were found to be below the national average. AAA and Geico were also found to provide relatively affordable coverage.

How does homeowners insurance work?---Your homeowners policy can differ from that of your neighbor. It all depends on how much coverage you sign-up for in the policy for specifics like fire, flood, theft, liability, etc. Once you’ve agreed upon the coverage desired with your agent, coverage typically beings the following day after payment is made.

In the event that something should happen to your home such as damage or an in-home accident involving a non-family member, you should contact your agent and file a claim immediately. Claims for approval or denial are typically processed with 48 hours. Once approved, you will then pay the deductible and work with an insurance representative or your agent toward the resolving of the damage to your property or liability incident.

Does homeowners insurance cover everything?---In short, no. It all depends on the type of policy, the company you purchased your policy through, and how much coverage you agreed to when choosing your policy. While fire-related damage is typically covered in all policies, some policies do not cover claims involving:

• Natural disasters
• Ordinance or law
• War
• Nuclear hazard
• Intentional loss
• Governmental action
• Mischievous acts
• Water damage from flooding
• Pests

So, What Does Homeowners Insurance Cover?

The primary item in policy coverage typically includes:

Dwelling Coverage: This is all about covering the structure of your home---interior walls, exterior walls, foundation, cabinetry, etc. If you can afford it, most insurers recommend enough coverage that would result in rebuilding your home as new should the worst happen to your home.

Coverage for Other Structures: Detached structures like your garage, fence, shed, gazebo etc.

Personal Property Coverage: This part of the policy protects the personal belongings in your home. However, you can never expect to get back the full value of when you bought the item new; rather, a depreciation value is calculated---typically, 50%. What makes personal property valuation and/or replacement difficult is if that particular item (say, a specific computer model that costs $2000 a few years ago and is no longer sold) can technically be replaced with a much cheaper similar item that performs the same function as the lost item e.g. a Dell for your Mac.

Loss of Use Coverage: Sometimes damage to a home is so catastrophic that it is unlivable until some remediation and repairs are done. In that event, a good policy will cover added living expenses such as meals and a temporary hotel stay.

Liability Coverage: Bodily injury or property damage to someone else, can be costly when it occurs on your property. Insurance providers typically recommend purchasing at least $300,000 worth of this type of coverage. Be sure that the policy also includes covering medical bills when someone other than your immediate family is injured in your home.

Look at what the Endorsements allow: Some companies offer endorsements that include coverage for a miscellany of other coverage features such as identity theft expenses, earthquakes, high-end valuables and sewer line/water backup problems.

Other coverages or custom plans: Not all companies will offer all of the same coverage protection from things like theft, foundation cracking, hail and windstorms, a vehicle or aircraft crashing into your home, vandalism, etc., so it is a good idea to go over the details of what exactly is and is not covered. In some cases you can customize your policy.

A Warning About the Claims Process

When it comes to homeowners insurance, one of the biggest mistakes a new homeowner can make is accepting an almost-immediate check from your insurer or claims adjuster just a few days after a calamity. Here’s why:

While away for a 4-day Thanksgiving holiday with the family, the cold water feed line to an upstairs toilet popped off and flooded approximately ½ of my home that included flooded first floor rooms and basement, and a collapsed ceiling on two levels. We felt devastated. Two days later, a claims adjuster showed up, looked over the damage, and then offered to write us a check for X amount of dollars on the spot. Fortunately, we did not accept it; Something did not seem right about the process. Especially since our insurance agent was not returning our calls.

Over the next few days, the insurance company had a water damage remediation business in our home trying to dry it out---lifting up the carpeting, vacuuming out water, blowing industrial fans in every room. However, after one week, the walls were still testing wet with moisture meters. The remediation company said that there must be a problem in the walls and wanted to cut into the walls for a visual examination. The claims adjuster forbade them to touch the walls and insisted they continue their drying process. Five days later, the walls were still wet.

By this time I had become very frustrated with the process, especially since I had overheard the claims adjuster argue with the water damage remediation business saying that they were only contracted for one week by the insurance provider. Any work beyond that would come out of the businesses’ pocket.

Because I believed that the water damage remediation business workers were correct when they said the problem lay in the walls, I decided to go ahead and cut into the walls myself and see why they were still wet. The claims adjuster pointedly told me that there would be no coverage for any damage done to the walls if I were to cut into it; but like I said, I was frustrated and needed the problem solved.

Shortly after cutting one small hole into a wall, we saw the problem: a plastic sheet vapor barrier lined the inside of the walls and essentially trapped a significant amount of water between the brick outside and the drywall inside. The drywall needed to be ripped out along with the plastic vapor barrier, or mold was guaranteed to become a major problem.

What Was Going On?

After talking to someone in the homebuilding industry about what happened, it was explained to me this way:

While our home was covered for accidental flooding of the type that occurred, the insurer wanted to pay out as little as possible. To accomplish this, they sometimes hire contract adjusters who are likely working by commission---the less the payout is, the more the adjuster makes. Adjusters know that when calamity in a home happens, homeowners feel relieved when someone offers them almost immediate payment from the insurer, thinking that they are being taken care of and reaping the benefits of wisely being insured.

While I cannot say that all adjusters are like this, in our case our adjuster was pushing us to take a check from him upon his first visit and brief inspection of the damage. Had we accepted his check it would mean that we could not come back to the insurer for more money if additional problems or complications occurred afterward. Replacement of the drywalls and other related damages were not included in the initial check offering. Our financial losses would have been greater.

There was another added expense as well. While our insurance provider did pay for the first few days of hotel fees for my family, coverage stopped long before we could return to our home. Industrial fans blowing through every room to try to dry the carpeting and walls was literally deafening and made our home unlivable. Only when we said we would take it up with a lawyer did the insurer agree to pay hotel fees until the fans were removed and the house cleared by the water damage remediation business.

Recommended Homeowner Insurance Providers

While new homeowners are encouraged to check out the differences between what homeowner insurance companies offer and how they differ, the This Old House Reviews Team did the work for you and offer these “8 Top Homeowners Insurance Companies of 2021.”

1. Allstate: Best Overall
2. Amica: Best Customer Service
3. State Farm: Best Endorsements
4. Liberty Mutual: Best Discounts
5. USAA: Best Membership Perks
6. Travelers: Most Experience
7. Farmers: Most Customizable Coverage
8. Lemonade: Quickest Sign-Up

For a more in-depth analysis of what made these insurance companies This Old House top choices, check out their informative article on how they assessed these companies as the best choice for new homeowners.

The Take-Home Message for Your Home

When you consider the value of your home, your belongings, and your sanity, nowhere is diligence more important than taking the time to research the insurance coverage you want and the company you choose. If possible, ask around at your workplace, church or community center and see if you can find someone who has had a home catastrophe and how it went with their insurer. You will be glad you did.

Tim Boyer is a home improvement reporter for Huliq.com and loves writing about real estate and home insurance

Photo by Tierra Mallorca on Unsplash

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