If you have recently purchased a home, you will need a homeowners insurance policy. Your mortgage lender will require coverage and even if you paid cash for your home, unless you can easily afford to rebuild or repair you home, you should carry homeowners coverage.

First time homeowners can find shopping for homeowners coverage confusing so here is a quick guide to help you understand homeowners coverage.

What incidents does homeowners insurance cover?

Homeowners insurance comes in a couple of different policy types:

Named peril policies: These policies will only cover damage that is caused by incidents named in the policy, such as fires, explosions, vandalism, or falling objects. This is not the most common type of policy sold, most insurers opt for an open peril policy.

Open peril policies: This policy will cover everything that is not specifically excluded in the policy wording. Common exclusions include flood and earthquake damage as well as routine wear and tear.

In general, most policies will cover the following:

  • Lightning
  • Windstorms
  • Fire
  • Smoke damage
  • Falling objects
  • Explosions
  • Damage from aircrafts
  • Burst pipes
  • Vandalism
  • Theft

It is important that homeowners read their policies in full, so they are aware of what is covered as well as what is excluded. Almost all standard homeowner policies exclude floods and earthquakes. In order to be fully protected against these perils you will need to purchase a separate flood or earthquake policy

What insurance losses are covered?

It’s important to also understand what is covered by your policy. Most standard homeowners policy offers the following coverages:

  • Liability coverage: This coverage will help pay for damages caused to others. It covers medical and legal expenses if someone is injured at your home.
  • Dwelling: The dwelling coverage will pay to repair or replace the house if it is damaged by a covered peril.
  • Personal property: This coverage will help pay for repairing or replacing personal property that is destroyed by a covered peril.
  • Loss of Use: This coverage will help for additional living expenses if you cannot live in your home while it is being repaired after being damaged by a covered peril. It will help pay for motel rooms, restaurant meals and other expenses.

How much will I pay for homeowners?

Insurers consider a variety of factors when setting a premium so your personal risk factors will impact your rates. The nationwide average for homeowners coverage is $2,305 a year. Shopping your coverage on regular basis with numerous insurance companies will help make sure that you find the most affordable premium.

Check the reviews

One of the most important items to check when shopping for coverage is reviews of how an insurer handles claims as well as their financial stability. Check out the J.D. Power Home Insurance Study to see where insurers rank on claims handling and customer service.
It is also important to check their financial stability of any insurers you are considering. Check out A.M. Best, Standard & Poor's, Moody's Investors Service, and Fitch Ratings which are the four largest rating agencies.