Buying your first house is a big deal. It’s also a big responsibility. If anything breaks, there’s no landlord to call. You have to handle the repairs yourself. And it’s not just for the small things, like a leaky faucet or a door that keeps sticking. If something big goes wrong – like a fire, plumbing disaster or burglary – you need to take care of that, too. That’s why you need homeowners insurance.
As a first-time homebuyer, you will probably have a mortgage through a lender. During this time, the lender will typically require you to maintain homeowners insurance to protect both your interests in the property.
Understanding What’s Covered
A homeowners policy will insure your home against covered perils, which typically includes fire, hail, burglary and other covered perils. Some policies are named-peril policies and cover only the policies that are listed in the policy. Other policies are open-peril policies, which cover every peril except those that are listed as excluded. Read your policy for details.
Your policy should protect the structure of your house, certain other structures on your property and your personal belongings. The policy limit tells you how much your home is covered for, and this should be high enough to cover the cost to rebuild your home (excluding the value of the land it sits on). Your policy will likely have a separate limit for personal property.
If your home becomes unlivable, your policy may pay for additional living expenses. For example, if there’s a fire and you need to stay in a hotel while it’s repaired, your additional living expenses benefits would kick it.
Your policy will also typically provide some liability coverage. This can protect you if your dog bites someone or a guest is injured on your property, for example.
The Consequences of Going Without Homeowners Insurance
If you don’t have insurance, you’ll have to pay for any damages or repairs out of pocket. If you don’t have the resources to repair after a fire or other major loss, you might be out of luck.
If insurance is required by your lender and you don’t maintain it, the lender may take out a force-placed policy at your expense – and you may end up paying much more, and getting much less for it, than you would have if you’d purchased your own policy. The lender could also choose to foreclose.
Getting Additional Coverage
Although a standard homeowners policy covers a lot of things, it doesn’t cover everything. Normal wear and tear are excluded. As the homeowner, you’re responsible for keeping your home in good condition.
For example, if your roof starts leaking because it’s old, you’ll personally need to pay for the repair or replacement. On the other hand, if your roof starts leaking because a tree falls on it, your homeowners insurance will likely provide coverage.
Certain perils, especially earthquakes and floods, will also be excluded. For coverage of excluded perils, you will either need to add a rider to your policy or purchase a separate policy.