By Michael Steele Homeowners Insurance July 3, 2020

Questions to Keep in Mind When Purchasing Homeowner’s Coverage

Here’s the truth: Buying homeowners insurance doesn’t have to be complicated.

To help make the process even easier, we’ve compiled a list of the 10 most common home insurance questions the IHS Insurance Group staff receives and quick-and-easy answers.

1. Am I Required to Carry Homeowners Insurance?

The bottom line is that if you own your home outright, you’re not legally mandated to pay for active homeowner’s insurance. But if you still have a mortgage, the lender will require that you carry insurance and list them as an additional insured so that they can protect their financial interest in the property.

Even if you don’t have to carry homeowner’s insurance, it’s typically a good idea. If a loss occurs, insurance can help get you back to square one after you pay your deductible, while also protecting your assets. Otherwise, you could be left with a bill totaling hundreds of thousands of dollars.

2. What’s the Difference Between Market Value and Replacement Cost?

When determining how much coverage you need (more next), you might expect to start with your home’s market value, which is what it would sell for under normal conditions on the open market. Or, what you might have recently paid if it’s a newer purchase.

However, home insurance companies are only interested in your home’s replacement cost. As CoreLogic explains, this number references the “estimated cost to construct, at current prices, a building with equal utility to the building being appraised.”

In other words, replacement cost references what it would cost to rebuild your home with like-kind quality and materials if it were a total loss.

In some instances, such as older or historic homes, their replacement cost could be considerably higher than their current value, depending on the specific real estate market.

3. How Much Home Insurance Do I Need?

To determine your home’s replacement cost, IHS Insurance Group uses a software tool called a replacement cost calculator. Here, we’ll enter a variety of factors about your home, after which it will calculate your ideal home insurance amount.

As a result, it’s a good idea to know the following about your home:

Construction style
Year built
Square footage
Foundation type
Attached structures
Roof type and age
Renovations or updates that have occurred since the home was built
Expensive upgrades (appliances, flooring, etc.)
Window types
Other exterior and interior features

4. Is Water Damage Covered Under My Homeowners Policy?

Because “water” damage can refer to multiple circumstances, whether it’s covered will depend on its proximate (i.e., original) cause.

For example, most home insurance policies cover water damage if it’s sudden, accidental, and internal (i.e., never touched the outside ground), and the result of a covered peril. Examples include:

A burst pipe in the basement
A bathtub that accidentally overflows
A fire suppression system that damages flooring and cabinetry
A roof leak
A rain or snowstorm

On the other hand, neglect, lack of maintenance, and flood-related water damage are not covered by most homeowners insurance policies, such as:

Pipe backup
Ground seepage
Rising groundwater

5. What’s the Difference Between Personal Property Replacement Cost, and Actual Cash Value?

The formula for determining the actual cash value of a personal property item is as follows: Cost New – Depreciation = ACV. So, if you purchased a computer two years ago for $3,000, it’s destroyed in a covered loss, and your policy only covered it on an ACV basis, you might only receive $1,000.

Comparatively, replacement cost is the amount you would need to pay to buy the same goods of similar kind and quality, but at today’s market value.

Continuing with the computer example, if the electronics now cost $3,500 to assemble and your property was insured on a replacement cost basis, you’d receive it as a payout.

6. Does My Home Insurance Cover Valuable Items?

Not all personal property is covered the same under a homeowner’s policy. Depending on the company, certain classifications, such as jewelry, fine art, memorabilia, high-end sports equipment, and even some electronics might be assigned sub-limits.

Therefore, if you had $5K worth of jewelry stolen but your policy limits payouts for this type of property to $1,500, you’d be out $3,500.

The good news is that you can often add much of this coverage back via a separate endorsement, or by taking out a different inland marine policy.

7. What Happens if Someone is Injured at My Home?

If a friend visits your home and injures themselves after a slip-and-fall accident (for example), the liability portion of your homeowner’s policy would likely pay for their medical bills and other related treatments. However, homeowner’s liability does not cover household members.

For these reasons, it’s a good idea to carry as much home liability coverage as possible.

8. What Happens After I File a Home Insurance Claim?

The specific chain of events set into motion after you file a home insurance claim largely depends on the details surrounding your loss.

From a high-level perspective, though, you can expect a call from a claims adjuster, who will verify the details of the loss and clarify any questions. Afterward, they may send out an adjuster to determine how much it will cost to repair your home, depending on the extent of the damages.

From there, the adjuster will coordinate with you to repair your home with the help of different contractors.

Finally, once all repairs have been completed to your satisfaction, the adjuster will close the claim. You might find that your rates increase the subsequent renewal as a result.

9. Which Homeowners Discounts Can Decrease My Insurance Rates?

As with endorsements and other coverages, discounts can vary between homeowner’s insurance companies. With this said, here are several of the most common:

Account Discount – Carrying a home and auto policy with the same insurer.
Protective Devices Discount – Smoke detectors, fire and burglar alarms, water sensors, gated community, etc.
Loyalty Discount – Staying with the same company for a certain length of time.
Home Updates – If you own an older home, updating its core systems (e.g., roof, plumbing, electrical, HVAC, etc.) can positively impact your insurance rates.
New Home – Conversely, owning a newer home (often built within the past 10 years) can also decrease your insurance rates.
Pay in Full – Paying your annual premium all at once, versus monthly installments.

10. What’s the Best Way to Find More Answers to Your Questions About Homeowners Insurance Coverage?

At IHS Insurance Group, we understand that an informed client is a valuable one. That’s why we place so much emphasis on crafting informative articles like these—as well as answering your questions in person, over the phone, or via email!

Need a FREE Quote or have questions regarding Home Insurance Coverage? We have three convenient ways to reach us:

If you prefer to talk to a licensed agent directly, please call (866) 480 5063.
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