10 Reasons to Consider Purchasing Homeowners Insurance

It was hours after finishing a round of golf under the bright Florida sun when the phone rang: "Hon," Karen said, her voice shaky with concern. "A tree has fallen on the house."

"What do you mean, a tree has fallen on the house?" I asked, as if the situation needed any further explanation. I could hear the stress and panic in her voice. "A tree has crashed into the living room roof...and there's water coming in. I heard a loud bang, and the dogs ran away."

It was March 2009, and a nor'easter was sweeping through New England. I had felt the strength of the developing storm a day before in Orlando. Now, as the storm moved up the coast, it was hammering my home with brutal winds and icy, biting rain. Once I confirmed that everyone, including the pets, was safe, I arranged for the tree to be removed. I then rescheduled my flight and made my way back home.

The damage could have been more severe. The tree was decayed, so most of its weight had turned to loam by the time the dogs shouted "timber." I made a few calls—first to a roofer, then to my insurance company.

For almost 12 years, I had been consistently paying for homeowners insurance. Now it was time to see if the good hands people would offer a handshake or leave me hanging. A few days after submitting the claim, the insurance company's appraiser came to assess the damage. I was pleasantly surprised by his approach. He empathized with my situation, and a few days later, I had a check in my hand.

Not everyone is so fortunate. When Paula Lazzari of Springfield, Mass., filed a claim for tornado damage in 2011, she had to fight for her payout. The appraiser only offered to repair a broken window and replace the siding at the back of her house. Lazzari, determined not to be shortchanged, contacted the state's Office of Consumer Affairs and Business Regulation. After the state intervened, the insurance company agreed to replace the entire siding, purchase a new stockade fence, and replace five windows and two ceilings [source: Ring].

Despite Lazzari's experience, if you're a homeowner, purchasing homeowners insurance is essential. Turn to the next page to learn why.

10: Satisfy Your Mortgage Lender

While homeowners insurance isn't mandatory in many states, most banks and mortgage lenders require it. Why? Insurance safeguards the lender’s investment if the house is damaged. Lenders typically want homeowners to have enough coverage to match the mortgage amount [source: Keefer].

If you're unable to buy insurance, the mortgage lender or bank will impose a policy known as forced coverage. It's best to secure your own homeowners policy, as forced coverage is extremely expensive and only protects the lender’s interests, not yours, your family’s, or your belongings [source: New Jersey Department of Banking & Insurance].

Additionally, keep your premium payments up to date. If you allow your insurance to lapse, the mortgage lender will insure the property for you. The lender can make you pay the higher premium until you secure your own homeowners policy [source: National Association of Insurance Commissioners].

9: Protects You from Lawsuits

Whenever Karen's parents, Bill and Bernice -- or anyone else over the age of 65 -- walks up the driveway, especially during the icy winter months, I make sure my dogs don’t knock them over. I also keep an eye out for any rocks, ice patches, twigs, ants, or even invisible lines on the gravel. I don’t want them to get hurt, and I certainly don’t want to be sued if they, or anyone else, gets injured. Still, if something were to happen, my insurance company promises to back me up.

Let’s hope I never have to test that out.

A standard homeowner’s policy typically covers you if someone gets injured while on your property. If your dog bites someone, your insurance will likely cover the costs. Most policies offer up to $100,000 in liability insurance, but you can purchase extra coverage. Liability insurance pays for the injured person’s medical expenses and property damage. It also covers legal fees if you need a lawyer for a court case [source: Keefer].

8: Protection from Loss

Homeowners insurance covers repairs or replacements to your home if it’s damaged or destroyed by fire, tornadoes, hurricanes, nor’easters, or nearly any other type of natural or man-made disaster, except floods. When purchasing homeowners insurance, make sure you have enough coverage to replace both your home and its contents. Roughly 75% of U.S. homeowners don’t carry adequate insurance to fully cover their homes [source: Keefer]. I should review my own policy.

Dwelling coverage will compensate for any damage to your main house and other structures, like an attached garage. It also covers damage to plumbing, electrical wiring, heating, and permanently installed air conditioning systems. Additionally, a homeowner’s policy will cover damages to fences, sheds, guest houses, and other outbuildings, including a detached garage [source: National Association of Insurance Commissioners].

7: Replace Your Things

If your belongings are destroyed, don’t worry — your insurance will reimburse you for the value of your property, including appliances, furniture, clothing, and other personal items. What’s great is that these items don’t need to be inside the house; they can be stored off-site, like in a self-storage unit or even with your child at college.

Many policies offer you a choice in how your belongings are covered. You can opt for actual cash value or replacement cost coverage. So, what’s the difference? Most items lose value over time. Actual cash value will reimburse you for what the items are worth now, factoring in depreciation. On the other hand, replacement cost coverage lets you replace your damaged property with new items at current prices. Replacement cost coverage tends to be more expensive than actual cash value [source: Allstate].

Keep in mind that most insurers offer personal property coverage up to 70% of the amount of insurance you have for your home’s structure. So, if your home is insured for $100,000, you should have up to $70,000 worth of personal property coverage [source: CBS Detroit].

6: Pays Medical Bills

Imagine Bill and Bernice, or maybe cousin Evie, walking up the driveway when one of them slips on a rock and fractures a hip. While they might not want to take legal action against me, my insurance will cover their medical expenses. Many homeowner policies include guest medical coverage, which pays for anyone injured on your property in an accident that isn't covered by general liability. It will cover things like surgery, X-rays, an ambulance ride, and hospital stays [source: Allstate].

5: Protects Equity

For most people, their home is the biggest investment they'll ever make. Homeowners insurance protects the equity in your home, which is the value of your property beyond any mortgage or other debts. As you make improvements to your house, the equity in your property increases. Homeowners insurance ensures that if anything happens to your home, you won’t have to start building equity from scratch again [source: Home Insurance].

4: Protection Against Natural Disasters

In early March 2012, tornadoes tore through the Midwest, leveling entire neighborhoods and towns. Insurance adjusters quickly moved into the affected areas to help residents file claims. After the storms on March 2, State Farm reported receiving 6,700 home claims by March 6 [source: Pontoriero].

Whether it’s a tornado, windstorm, or hurricane, homeowners insurance will cover repairs if the home or its nearby structures are damaged or destroyed. However, be aware that certain natural disasters, like earthquakes, may require special insurance policies [source: Home Insurance]. Additionally, most homeowner policies do not cover flooding, which means you must purchase separate flood insurance from the National Flood Insurance Program offered by the federal government [source: Allstate].

3: Loss of Use

Just before Halloween in 2011, a fierce nor'easter swept into Connecticut, dumping over a foot of snow in certain areas. With leaves still on the trees, the heavy snow caused countless power outages as branches collapsed onto power lines. A friend of ours, just up the road, had a tree fall on her house. Thankfully, no one was hurt, but the roof was severely damaged. The house became uninhabitable for a while. Her insurance covered her stay in a hotel until the roof was repaired.

If your home is destroyed or severely damaged to the point where you need to stay elsewhere, a typical home insurance policy provides coverage for relocation. The "loss of use" coverage will reimburse expenses such as hotels, meals, and other living costs. Most insurance providers offer up to 20 percent of the policy amount for these expenses. For example, if your home is insured for $200,000, you’d have approximately $40,000 available for loss of use coverage [source: Home Insurance].

2: Coverage for Theft and Burglary

I have a Great Dane and two other large dogs guarding my house. However, if someone were reckless enough to break in, and managed to survive the encounter, my homeowner's policy would cover anything they took. The policy will reimburse the actual cash value or replacement costs, as described earlier. To ensure a smooth claims process, keep a detailed inventory of your valuable items. Not only should you write them down, but also take pictures and keep receipts. I wouldn't store this inventory on a computer, though – it could be stolen as well.

1: Peace of Mind

The primary advantage of having homeowners insurance is the peace of mind it provides. I may sound like an insurance spokesperson, but the truth is, homeowners insurance is a necessity. While we hope we never face a tornado that destroys our attic or a tree that crashes through the roof, if those disasters ever occur, you’ll be thankful you have insurance.

Bear in mind, insurance companies aren’t doing you any favors. To them, you're simply a policy number. They’re often reluctant to pay out, disputing claims or accusing your contractor of dishonesty. It's important to remember that it's your money. Don’t hesitate to assert yourself. If you feel you’re being mistreated, reach out to your state’s consumer protection or insurance agencies, just as Paula Lazzari of Springfield, Mass. did successfully.