Deciding how much home insurance you need

How Much Home Insurance Do You Actually Need?

No one enjoys paying for insurance — but when your insurance carrier compensates you for a loss, you'll be glad you have a good policy! If you're a lucky someone who has never had to use your insurance policy benefits, you might be wondering wheather you really need extensive homeowners insurance to protect your pad.

If you have any type of home loan, homeowners insurance is required. Even if you are willing to take a risk regarding what could happen to your home, your lender isn't. The good news is that you can shop around for home insurance to get the best deal for you and your family. The even better news is that in Arizona, homeowners insurance policies typically cost around $300 less per year than the national average, since the risk of natural disasters is relatively low.

Here's what to know about your insurance options so that you get the exact coverage you're after.

Considerations of Homeowners Insurance Policies

The amount you spend on homeowners insurance will depend on how much coverage you want. Some factors that will influence how much you pay for homeowners insurance include:

  • Type of house: For example, a small 1-bedroom condo will require less coverage than a ranch that sprawls out over several acres.
  • Special home features: Some home features may add to the risk of your home; for example, a wood-burning fireplace.
  • New renovations: If you've recently spent money upgrading your home, you may want to protect your investment by increasing your insurance coverage to match your home’s new value.
  • Location and climate: Hundreds of earthquakes take place in Arizona every year, according to the Department of Emergency and Military Affairs. Though most earthquakes here don’t damage homes, you might want extra coverage if you live closer to a fault line. Monsoons and floods are also a growing concern.

A 2017 study by researchers at University of Arizona found that monsoon storms in central and southwest Arizona have grown more intense in the past 50 years. The study confirmed that monsoons are the main severe weather threat in Arizona, with accompanying dust storms, high winds, flash flooding and microbursts wreaking havoc on some Valley properties. Because of this, more homeowners are choosing to add flood coverage to their policies.

Types of Insurance Policies

PMI: In addition to the homeowners insurance that is required to get a home loan, you might be required to pay private mortgage insurance (PMI). PMI is required for home purchases with less than 20 percent down. It helps protect the lender in case the borrower fails to make payments. With many home loans, you'll be able to eliminate PMI once you've paid off 20 percent of your home’s principal.

Homeowners insurance: Three common types of homeowners insurance are HO-1, HO-8 and HO-3. HO-1: Insurance is a basic homeowners policy that typically protects against these types of risks:

  • Burglary
  • Vandalism
  • Fire and smoke
  • Explosions
  • Lightning
  • Hail and windstorms
  • Damage from vehicles and aircraft
  • Volcanic eruption
  • Riots and civil commotion

So, there are no volcanoes here in the Valley, but there were 36,448 burglaries reported in Arizona in 2017 — resulting in more than $37 billion stolen from residential properties, according to the Arizona Department of Public Safety Crime in Arizona 2017 report. Plus, there were 1,016 arson offenses in Arizona in 2017. With an HO-1 policy, you’ll likely be covered if these types of crimes happen and you report them to the police.

HO-8: HO-8 insurance is a policy specifically designed to provide coverage for older homes. It includes everything covered in the HO-1, plus other risks like falling objects and household system failure. Owners of older homes in historic Valley neighborhoods might benefit from an HO-8 policy, since this coverage takes the age of the home into account.

HO-3: An HO-3 policy insures both the home and any structures that are attached to it. It also provides coverage for personal belongings and offers personal liability protection in the event that someone is hurt on your property.

Optional Insurance Policies

If you want to increase your coverage, you can add optional insurance policies beyond flood or earthquake insurance to your plan. These can include:

  • Heat damage coverage, which covers extreme heat damage to a home's foundation, roof, hardwood floors and pipes
  • Personal umbrella liability coverage, which protects against major claims and lawsuits, including those stemming from injuries on your property
  • Medical payment coverage, which covers excessive medical bills due to injuries you or a guest experience on your property

Optional insurance may not seem necessary now, but you may be surprised at what could affect you. Think about Valley-specific coverage, too. Air conditioning is non-negotiable in Arizona — especially in the summer months. When you’re shopping for a new insurance policy (or letting us shop for you), find out whether A/C unit damage is covered, and under what circumstances.

What's the Price You're Willing to Pay?

Even if you haven't taken out a home loan or you’ve already paid off your mortgage, homeowners insurance is still essential if you don't want to risk having to pay out-of-pocket for damages that occur. We know that there’s a lot to consider when buying homeowners insurance, so our Desert Financial Insurance Services agents are here to help you sort through the details. We’ll shop around to ensure that you get the right home protection for you and your family at a price you feel comfortable with.