Homeowners’ Insurance, Part 1: The Basics and Special Considerations for Service Members

By Carol Church

Your home is your pride and joy, your place to unwind and relax, and where your memories are made. It’s also likely to be the single biggest investment you have. Although we don’t like to think about it, accidents and disasters like fire, hurricanes, and break-ins can and do happen. When they do, homeowners’ insurance can be there for us.

While homeowners’ insurance actually isn’t legally required, you can’t get a loan from the bank without it. So except for those who own their homes free and clear, we’re going to need to carry it. Even for those homeowners who no longer have a mortgage, however, it’s highly inadvisable to go without this coverage. Though most of us won’t use ours in any given year, any of us can also need it at any moment!

MonkeyBusiness Images/Photospin

The Basics

Homeowners’ insurance is intended to protect a family from financial losses in four areas:

  • Damage to or loss of the house itself

If a covered disaster or problem damages the house itself (note: not every source of damage is covered), then the insurance company will pay to repair it.

  • Damage to or loss of the things we own

If our belongings are stolen, destroyed, or damaged as a result of covered events, the policy will pay for them (though it might not pay their full replacement cost, depending).

  • Injuries (and associated health costs) to people visiting the house

If someone is accidentally hurt while at our home, this coverage will pay medical bills.

  • Our living costs, should we need to live somewhere else while our home is being repaired

Sometimes damage to a home is so severe that it cannot be lived in during its repair. In such cases, this part of the coverage pays for expenses while the homeowner (and family) stay elsewhere.

Coverage Types

When insuring a home, we need to decide on the extent of coverage to provide. There are three options:

  • Actual Cash Value

This is the least expensive coverage. It takes into account the age and condition of the property. For instance, if a laptop is 3 years old, the owner would be reimbursed for the value of a 3-year-old laptop, not the cost of a brand-new laptop.

  • Replacement Cost

This coverage will pay for the replacement cost of the owner’s home and/or belongings. (It should cover only the cost of the actual home, not the land it’s on.) It assumes that the cost to replace is the current value of the home.

  • Guaranteed Replacement Cost

This is the most generous (and expensive) type of coverage. It will cover 100% of the true cost of replacing or rebuilding, regardless of inflation or increased building costs. (These can occur if there has been a large-scale natural disaster in the area.)

In most policies, a home’s structure is covered at replacement cost and its contents are covered at actual cash value. Choosing actual cash value coverage saves on premiums; however, in the event of a claim, payouts will be lower.

Special Considerations for Service Members

Though many aspects of homeowners’’ insurance apply universally, there are a few special considerations for members of the military.

  • Vacancy Clauses

An important homeowners’ insurance consideration for some service members (though it may be less relevant to those with families) is whether or not they will be leaving their homes vacant for an extended period due to deployment or a PCS. Many insurance companies employ a “vacancy clause” that states that they won’t pay out for coverage (or won’t pay as much) when a home is left empty for more than a specified period (often this is 60 days). However, some companies may also offer an endorsement to provide coverage in this instance, especially in the case of service members. Service members should look into this when selecting coverage.

  • Acts of War

Although insurance policies typically cover losses to personal property that occur when you take your belongings with you while traveling (for instance, if all your luggage were to be stolen while on vacation), this coverage generally does not include damage or destruction to property caused by acts of war. Since the military typically doesn’t cover these losses either, this is something to keep in mind when deciding what to take on deployment.

  • While Deployed

It’s not always easy to take care of financial obligations while deployed, and this can include homeowners’ insurance. Before departure, service members should ensure that premiums are prepaid (or that there will not be a shortfall in their escrow accounts). It may be wise to renew or reassess policies ahead of schedule.

  • Deals and Discounts

Many insurance providers have special discounts for members of the military. It always pays to ask (and to ask more than once, if the first answer is no). In addition, various companies cater especially to service members, such as USAA and AFI.

In part 2, we’ll discuss ways to save on homeowners’ insurance.