Home Insurance: A Beginner’s Guide
Everything you need to know about home insurance in four simple parts.
You did a walkthrough and fell in love with walls, cupboards, and flooring in a way you didn’t know you could love walls, cupboards, and flooring. You’re about to start a new chapter of your life, and you’re ready to learn all the twists and turns that it entails. A major step in the process? Figuring out your home insurance – and what it even is in the first place. Fret no more, homeowner. Branch has got your back.
1. What is home insurance?
The Insurance Information Institute puts it simply: home insurance provides you with financial protection in the event of a disaster or accident involving your home.
Think of it this way - we’re all writing our own future as individuals, but financial disaster isn’t in any of those plans. Home insurance can help keep us on our path when a disaster or accident occurs involving our homes.
If you have or will be taking out a mortgage to purchase your house, lenders require home insurance to protect the property. It’s sort of like you (the homeowner) promising your mortgage lender you’ll take care of the property while also protecting yourself against any financial hardship that may arise due to unexpected losses, damages, or accidents in your home or on its property. According to Investopedia, practically all mortgage lenders require home insurance before issuing a loan to purchase a home.
In layman's terms, home insurance makes sure you and the company that’s lending you dough so you can buy a home and go all Bob Vila on it don’t wind up in a bind just because a water pipe burst in the basement and a chunk of it hit your kid’s friend in the head and his parents want to sue.
2. What’s in home insurance?
Home insurance is like your aunt’s seven-layer dip. In our case, there’s only six layers to our home insurance – but it still makes for a deliciously satisfying bite of security and peace of mind.
There’s Dwelling Protection - that’s the guacamole - which helps pay to rebuild and repair physical aspects of your home if they get damaged by a covered loss
Personal Property coverage is the refried beans. If you’re an avid canned bean collector, there’s a chance your personal property literally is refried beans. If not, we consider personal property to include furniture, clothes, media, electronics, jewelry and other accoutrements that you keep in your house.
Personal Liability coverage is the real meat and potatoes of your home insurance – or whatever the meat and potatoes of seven-layer dip is. Is it cheese? Let’s say it’s cheese. In any case, personal liability coverage protects you from personal, financial responsibility should someone be injured or something you don’t own be damaged in your home or on your property. It protects you, the homeowner, whereas dwelling and personal property coverage protect things.
These three main aspects of home insurance offer fairly comprehensive coverage and protection to both you and your home. But wait, there’s more!
Alongside protecting your home and you, home insurance also covers Other Structures. We’re too deep into the dip analogy to back out now, so other structures are the black olives sprinkled in between the guac (dwelling coverage) and refried beans (personal property coverage) of your home insurance. Generally, these are buildings that exist on your property that are attached to the ground but not to your home.This could include a tool shed, in-ground pools, your garage, or an ultra fancy “tiny house” you built for your dog that’s full of bone-shaped pillows and a little bell he rings when he’s feeling snackish.
The pico de gallo of our standard home insurance policy is Medical Expenses for guests in your home who experience injury as a result of property damage. Remember when Dorothy’s house landed on the Wicked Witch of the East? The Wicked Witch of the East was just minding her business and then a house fell on her. The house atop of her caused her feet to curl up in a really weird looking way. Had she survived this crazy ordeal, she probably would have needed to head right to a podiatrist. Luckily, Dorothy’s Guest Medical Expense coverage would have covered that visit.
Through Branch, your home insurance policy includes Additional Living Expenses – the sour cream, which makes dip of any number of layers (and this analogy!) complete. Sadly, “additional living” doesn’t mean growing a second-you who does the chores and goes to meetings while you lounge by the pool. In the event that your home is uninhabitable due to a covered loss and you need somewhere to live until you’re back on stable footing, we’ll cover the cost of a hotel or AirBnB or other temporary housing, up to the limits stated in your policy.
All of these features combined create a delicious six-layer dip that is the standard home insurance policy. They hit the most common financial woes related to home ownership to make sure you’re covered. And who doesn’t love to be covered in delicious dip?
3. Deductibles: A crash course
You’ve heard the word, but if someone asked you to explain a deductible, could you? Maybe not. At its most basic definition, a “deductible” just means an amount you pay out of pocket before your coverage kicks in. If your deductible is $10,000 and you experienced $20,000 in damages, you’ve committed to paying $10,000 and your insurance picks up the rest. The higher your deductible, the lower your monthly insurance costs will be.
Why do we have deductibles you ask? Let’s take a quick step back: at its core, insurance is money you set aside to financially restore yourself after a bad thing happens. While the money is set aside, it’s pooled with other people’s insurance money and used in the event a member of that community needs it to cover a claim. When you think of insurance this way, it’s easy to see that deductibles exist to ensure that each member of the community has an incentive to use the pooled insurance money as if it were their own.
When you buy a home policy through Branch, you’ll choose a Wind & Hail deductible and then a deductible for “All Other Perils” - a fancy insurance term for “everything else.” Depending on where you live, you may need to select other kinds of deductibles, like Hurricane (refers to damages caused by, you guessed it, hurricanes), Water Back Up (for instances when water coming up from the ground causes damage to your home), or Mine Subsidence (which applies when you live near an area that may have mines in the ground - like near a coal mining plant).
If your home is damaged by wind or hail, your coverage will kick in once you’ve paid down your Wind & Hail deductible. Let’s say your home is damaged by fire, once you paid down your “All Other Perils” deductible, your coverage would kick in.
Say it with me now: once you’ve paid your deductible, your coverage kicks in.
And that’s deductibles! Pretty simple, right?
4. How to think about buying insurance
Fundamentally, insurance is there to make sure that no matter what kind of accident life throws your way, you don’t get knocked off your financial growth trajectory. Everything detailed above is what goes into a typical home insurance policy and are important factors to consider when determining your deductible and coverage amounts, but all of this is meaningless without examining the specific aspects of your life and what works best for you.
Choosing dwelling coverage
At Branch, we automatically analyze and estimate the cost to repair or replace your home in the event of a disaster. We use this estimate to set your minimum Dwelling Protection coverage amount. Your minimum coverage is equal to the estimated cost of totally rebuilding your home.
Given that your Dwelling Protection is based on an estimate, you can choose to add incremental coverage, which gives you an added buffer in the event you need to rebuild your home. Incremental coverage effectively gives you extra protection in the event the rebuild process is more costly than expected. We recommend 10%, but if you’re the kind of person who’d rather pay a little more every month for the peace of mind that you’d have money to rebuild your home in the event that something terrible happens, choose a higher percentage.
Choosing a deductible
Choosing deductibles that fit your life is key to building an insurance plan that gives you peace of mind and security. As detailed above, generally a higher deductible means lower monthly payments and a lower deductible results in higher monthly payments.
There are some key factors to consider when choosing your deductible, like the age of your home and your overall financial standing. If you’re a first-time homeowner living in a brand new house, you’ll likely have different needs than someone who has lived in the same home for a few decades.
If you’re the kind of person who isn’t worried about spending a bit more every month for the peace of mind that if disaster did strike, you wouldn’t have to pay out of pocket at all, a lower deductible may be the right fit for you.
If you’d rather keep monthly costs low because you could cover the deductible if disaster did strike, a higher deductible may work for you.
Ultimately, when choosing a deductible you need to consider what you can afford to pay every month and how much you’d be able to come out of pocket in the event something happens to your home.
How to think about choosing coverage
Ultimately, choosing what insurance structure works best for you boils down to answering some tough questions:
How much is your home and property worth and what would it cost to repair or rebuild it?
Do you prefer to pay more per month, or pay when emergency strikes?
What are the odds of disaster, damage, and loss affecting you?
Hopefully this breakdown has been illuminating and resolved some of your major questions about choosing home insurance. If you still have questions, feel free to reach out to us by contacting us at 833-4BRANCH or head over to Branch to get covered in minutes.