Millennials represent over half of all new mortgages, head and shoulders above Gen X and Baby Boomers. Millennials also have more debt than previous generations have ever experienced.
A report from the National Association of Realtors shows that around 60 percent of millennials cited student loan debt as the main reason that they delayed purchasing their first home, which in no way surprised us, the millennial staff at Kin. Student loan debt is over $1.5 trillion, and this burden has caused many of us to delay major life events, including homeownership.
As for many in this generation, a new home may also be an office or the headquarters of a small business. That matters when it comes to getting the right insurance. Let’s demystify homeowners insurance coverage and point out a few less-obvious considerations that will keep you and your assets safe.
What Is Homeowners Insurance and What Does It Cover?
There are many types of homeowners insurance, and each offers a different level of coverage. Condo insurance (an HO-6 policy) is different from mobile home insurance, which is different from insurance for a single-family residential property (an HO-3 policy).
Generally, though, homeowners insurance covers your dwelling (the house), personal property (clothes, furniture, TV, etc.), and other structures if they’re damaged because of:
- Fire or smoke
- Theft or vandalism
- Water damage that originates from inside your home (like from a burst pipe)
Be aware, though, that every policy comes with specific exclusions.
Another important note: homeowners insurance also offers liability coverage in the event that a guest is injured or experiences property damage on your property.
Whatever type of homeowners insurance policy you choose, homeowners insurance doesn’t cover regular wear and tear, so you should be sure to keep up with regular home maintenance throughout the year.
So Why Do You Need Homeowners Insurance?
If you have a mortgage, you were likely required to prove you have homeowners insurance. Your lender must have proof that their investment (and you, the guarantor) are protected from the unexpected.
If you’re a millennial with a mortgage, your lender will likely require you to have homeowners insurance.
How to Get the Right Coverage for Your Property
There are three big things to consider when you’re looking at how much coverage you need:
- What types of activities do you plan on doing (freelancing, Airbnb hosting, running a business, etc.)
- What things you’ll have onsite (from laptops to heirlooms)
- What kinds of hazards may be in the area (weather)
Let’s take a look at each.
1. Is Your House Just a Home, or Do You Have Bigger Plans?
The number of Americans who work for themselves is growing, as many millennials have a side gig to make ends meet. The rise of the gig economy hits close to home for many, including homeowners who are working out of or renting out their homes to earn extra income.
In the event that you plan on using your first house for multiple pursuits, your insurance company will be able to help guide you toward the right amount of coverage, but here are a few resources to get you started:
- If you’re thinking about listing your property as a short-term rental, check out this guide to home insurance for your Airbnb.
- If you intend to rent it out in the longer term and live off-site, do not skimp on landlord insurance, which includes more extensive liability coverage than a standard homeowners insurance policy.
- Will you run a small business out of your home? If so, note that homeowners insurance specifically excludes coverage for business-related activities, so you will need additional insurance to protect your business property and operations.
Whether you plan to get started right away or a year down the line, if you plan to use your house as anything other than a single-family residence, be sure to discuss what kind of coverage you’ll need with your insurance company.
2. Keep Your Home Inventory and Scheduled Property Up to Date
If you’re a new homeowner, your move is a great opportunity to create a home inventory that reflects the value of your possessions. Digital support for home inventories is better than ever, and there are plenty of apps to catalog your major purchases and the condition of your appliances.
If you do have any valuables in your home or pieces of personal property worth more than the limit of your standard policy, you may want to buy additional coverage for these items. It’s important to schedule your high-value personal property to help ensure that you’d receive compensation for that item in the event of theft or major property damage.
3. Know the Weather in Your Neck of the Woods
The weather is one factor no homeowner of any age can control, but the reality for millennials buying their first home is that there are more severe weather events today than there used to be.
FEMA’s official stance on the issue is that anywhere it can rain, it can flood. Translation: even if your parents didn’t need flood insurance, you might.
If you don’t already know about local weather patterns, do some research to get to know your area, the history of major weather events, and what your local insurance laws require.
You should also read up on what your homeowners insurance covers when it comes to weather-related disasters – and what it doesn’t. A few important severe weather coverage notes:
- Hurricane insurance (sometimes called wind insurance) will cover you in the event of damage caused by wind or hail, but not flooding. This coverage is often included in a standard homeowners policy.
- Flood insurance helps pay for damage caused by storm surges or storm-related flooding and must be purchased separately from your homeowners policy. If you live near a body of water that regularly floods or in the path of Atlantic hurricanes, you may be required to have this coverage. While your standard HO-3 and HO-6 (condo insurance) may cover water damage caused by a burst pipe or groundwater seepage, it’s not likely to cover you in the event that your home is flooded by rainwater or a storm surge.
- Tornado insurance isn’t really a thing, but residents of Tornado Alley are likely to pay much higher premiums that they would elsewhere because one of the main factors determining cost of homeowners insurance is weather.
Get Coverage That Works for Your Wallet
In a Bankrate survey, an astonishing 63 percent of millennials expressed regret about buying their first home, and the chief complaint was the burden of unexpected costs. This includes monthly overhead, which includes regular insurance payments and maintenance costs.
Of course, one goal of homeowners insurance is to make major, storm-related repairs less burdensome, but it’s also important to have a homeowners insurance policy you can comfortably afford month to month.
The basic concept behind most homeowners insurance plans is that you make a modest payment every month (called a premium) to an insurance company (like Kin). In return, they will provide financial assistance to repair or replace things damaged by covered events.
This financial assistance kicks in after you, the homeowner, put a certain amount of money toward the repairs or replacements (this is called your deductible). Deductibles ensure that risk is shared between you and your insurer. This helps keep premiums affordable by deterring small claims.
A house is a huge investment; you’re not expected to be able to afford major repairs or a complete replacement on your own. So it matters that you pick the right plan. The right plan is one you can afford today and the one that provides enough funds that you can restore your home the day after the storm hits.
In other words, you want a plan that:
- Has a premium you can afford to pay every month.
- Has a deductible you can afford to pay in the event of a major claim.
Generally speaking, the lower your premiums, the higher your deductible. Your task in picking insurance is to find a plan with the right coverage for your property at a cost that works for you.
For example, a plan with a $10,000 deductible may come with very low monthly premiums – but it’s not a good fit for you unless you have $10,000 sitting around that you can afford to put toward a major home repair.
And again: if you operate a business out of your home, damage to it will not be covered by your homeowners insurance policy. To protect a home business or side gig, you’ll need a separate business insurance policy.
Shop Around for a Reasonable Premium
There are a few main factors that influence your homeowners insurance premium, and most of them are out of your hands (including local weather, the population, and how close you live to a fire station). But even though some factors that affect the cost of your insurance are out of your control, you can shop around for a reasonable premiums.
It’s wise to compare several home insurance options to find the plan that’s best for your budget. New homeowners insurance providers on the market today, like Kin, make it easier than ever to do just that. These companies know that millennials expect information and applications to be readily available online – and thanks to millennials like Kin’s founders, there are now startups that use digitally available information to improve homeowners insurance and help reduce costs for customers.
What about Filing a Homeowners Insurance Claim?
Hopefully you’ll never have to file a homeowners insurance claim, and the odds are in your favor: 88 percent of insured homeowners have never filed a claim.
Experts recommend keeping a deductible of at least $2,000 to dissuade yourself from filing small claims like repairs that you can afford to pay off on your own. Bear in mind that your claims history impacts your home insurance premiums, so it's smart to only file claims when you absolutely must.
If there is major damage to your property and you don’t know what to do, pick up the phone and call your insurance company. They’ll be happy to give you instructions on how to document and file your claim.
Owning a home is a lot of work, but it also comes with a lot of rewards (want to paint the walls? Go ahead!). Making sure you’ve adequately protected what’s probably your biggest asset is one of the best ways to make sure you enjoy those rewards, and we at Kin are happy to support you in that process. And now: enough about insurance. Get out there and meet your new neighbors!