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Homeowners, renters, and property insurance: What you need to know

At a glance:

  • Homeowner's and renter's insurance

  • Special types of property insurance

  • Other special kinds of insurance coverage

  • Summary of property insurance

You can't prevent your home, apartment, car, or personal property from being devastated by natural or man-made disaster unless you can see it coming far enough in advance and are able to move it from harm's way.

However, you can take steps to protect yourself from the financial loss that results from such perils. Even if you have taken all the precautions to keep your property safe, there is still a risk of loss over which you have no control.

This is where property insurance can help you. But does your insurance cover what you need it to cover? Does it cover too much or too little? Can you raise your deductible and enjoy lower rates?

Homeowner's and renter's insurance

The most common form of insurance that covers hazards to your house and property is known as homeowner's insurance (HOI) or property insurance. Very often mortgage lenders require it.

Not all property insurance covers all possible hazards, so it needs to be tailored to the property risks prevalent in your area.

While hazard insurance is available to provide a financial buffer against the financial risk of damage to your property, not all property insurance covers all possible hazards, so it needs to be tailored to the property risks prevalent in your area.

The three types

There are different types of hazard insurance: basic homeowner's insurance, comprehensive homeowner's insurance, and specific hazard insurance. They differ in which risks, or hazards, are covered. Basic homeowner's insurance covers damage to the home.

Comprehensive homeowner's insurance covers the home, the real property, and the personal property in it, as well as adjacent structures like a garage, and also provides liability insurance in case somebody is injured on the property.

Generally, HOI protects you (and usually the lender who holds your mortgage) against loss due to fire, theft, vandalism, lightning, smoke, and someone driving a car through a wall into your living room. Such HOI is called an "open perils" policy, which covers all perils not specifically excluded elsewhere in the policy.

What is not included

As with any insurance, it is important to know what is included and what is not. Most policies exclude natural disaster risks such as floods or earthquake damage, but specific hazard coverage (riders) may be added to a basic or comprehensive policy for those risks.

Standard HOI also excludes damage due to work needed to bring your house up to code; any government action, such as confiscation or destruction; power failures and water damage; and earth movement, such as mudslides. It excludes damage caused because of neglect—your failure to take reasonable measures to save your property during or after a loss. Damages caused by war and nuclear hazard or explosion from any source are typically excluded.

Most HOI excludes damage from an "act of God," defined as a natural disaster no one could have prevented, such as a tsunami, volcanic eruption, wildfire, tornado, or hurricane.

Frank and his sister try to recover belongings from their house destroyed by Hurricane Michael in Mexico Beach, Florida. (Photo: HECTOR RETAMAL/AFP via Getty Images)
Frank and his sister try to recover belongings from their house destroyed by Hurricane Michael in Mexico Beach, Florida. (Photo: HECTOR RETAMAL/AFP via Getty Images)

Where to research it

Check the National Association of Insurance Commissioners (www.naic.org) to help you choose an insurer in your area and to get a complaint history. Many companies also have online insurance quote services.

Renter's insurance

Renter's insurance is not very expensive, and it can buy peace of mind for your belongings and valuables. If you are a renter and do not have renter's insurance, it pays to look into its cost and its coverage and set aside funds for it. If you already have some other form of insurance like auto or health, you may qualify for a discount if you get renter's insurance with that same company. Working with an agent can help you determine the amount you need to cover and at what cost.

If you are self-employed and work out of your home, you may be able to take a tax deduction on part of your renter's insurance cost.

Special types of property insurance

When it comes to protecting your home and your property, sometimes traditional homeowners or rental insurance isn't enough. Especially if you live in an area that is prone to earthquakes, floods or have a special situation such as a business that you own, you may need to consider getting additional insurance coverage.

Identity theft is another situation where you may want to consider additional coverage. You may also have valuable possessions, such as jewelry, that may need additional coverage.

Whether you need extra coverage or not, it's a good idea to make sure you understand what types of coverage your current property insurance covers either by checking with your insurance agent or your insurance company.

Earthquake insurance

Earthquake insurance isn't usually included in homeowners or renters insurance policies. Earthquake insurance covers damages to a home and contents that are caused by earthquakes. However, other related damage, such as flood damage related to an earthquake, might not be covered.

The cost of earthquake insurance is highest in areas that are most prone to earthquakes, such as California. Like all types of insurance, an earthquake insurance policy will have a deductible.

The overall cost also depends on the age of a house, the type of construction, and other factors. Some insurance companies offer earthquake insurance; in other cases, special agencies, such as the California Earthquake Authority, provide coverage.

Flood insurance

Most property insurance companies that provide homeowners or rental insurance coverage don't provide flood insurance. You can obtain flood insurance through an insurance agent from the National Flood Insurance Program or a private company. Flood insurance typically isn't as comprehensive as traditional property insurance. Flood insurance will also carry a deductible.

For example, coverage for basements and items stored in basements is limited. Temporary housing for your family during and after a flood isn't covered, and if your car is damaged in a flood, that isn't covered either. If you live in an area prone to floods and have a mortgage on your home, your mortgage lender may require you to purchase flood insurance in addition to your regular property insurance.

If your home is paid off or if you live in an area that has moderate or low flood risk, you can get flood insurance, but you don't have to.

Business property insurance

If you own your own business, especially if that business has a separate location from your home, you should consider business insurance coverage. Many business property insurance policies will cover damage from a wide variety of causes. If you do operate a business out of your home, your homeowners insurance will likely not cover losses to your home-based business if you have a claim.

Similar to other types of coverage, the level of coverage and deductible will depend on how much coverage you need and what types of coverage. You may also want to consider additional business coverage, including business interruption coverage or liability insurance.

Other special kinds of insurance coverage

Other types of insurance coverage you may want to consider include identity theft coverage and special riders to cover valuable objects, such as jewelry or art. Identity theft coverage, contrary to popular belief, will not reimburse you for funds that are stolen as a result of an identity theft incident.

Instead, it covers the costs involved if you have to restore your identity after an identity theft incident. This may include attorney's fees, lost wages, and certified mailing and notary costs. Some identity theft insurance coverage provides credit monitoring services and will alert you if a suspicious incident occurs.

You may want to pay for an additional rider or riders on your insurance policy to cover jewelry or valuables that aren't typically covered under most insurance policies. Many policies limit losses on jewelry or other special items to $1,500 or $2,500 for all of those special or valuable items. To obtain that coverage, you usually must get an appraisal and insure it for that amount. Typically, coverage isn't very expensive.

A damaged home after a large tree fell on it during a tornado. (Photo: Getty Images)
A damaged home after a large tree fell on it during a tornado. (Photo: Getty Images)

Summary of property insurance

Property helps protect you against the risk of damage to or loss of home and property. Knowing the inclusions of your insurance helps you to avoid paying for the same coverage twice. Knowing the exclusions helps you to determine what special insurance you need.

Knowing the inclusions and exclusions of your policies protects you, the homeowner, against unpleasant and potentially financially damaging surprises should disaster strike.

Before you buy insurance, you must decide how much coverage you need and what coverage is appropriate. And, of course, you'll want to find ways to cut your insurance costs. Look over the list below for a handy guide to getting started.

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

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