by Gary Foreman

Your homeowners insurance needs have likely changed many times during your life. Do you have the right coverage now that you are an empty nester? Use these guidelines to ensure you are not paying too much or covering too little.

You’ve owned a home for years, but now, as you near or enter retirement, it may be time to take a second look at your homeowners insurance. Some things have changed since you took out your first homeowners policy years ago.

You’ve bought and sold multiple houses. Your kids were born, grew up in your home, and now have homes of their own. You may be considering downsizing. Your needs are changing.

So, let’s do a review of homeowners insurance from an empty nester’s perspective.

What Is Homeowners Insurance?

Homeowners insurance protects you against loss of property or liability due to accidents to others on your property. The insurance coverage is detailed in a written contract. The losses that are covered are explained in the contract. The homeowner pays a “premium” to be covered for a specific period of time.

How Does a Deductible Work on Homeowners Insurance?

The deductible is the amount that the insured (you) needs to cover before insurance will pay the rest. In your younger years, you may have chosen a low deductible. Coming up with $500 for a deductible was hard and $1,000 was unthinkable. However, perhaps now you could cover $5,000 if needed. A higher deductible does mean that you take on more risk, but it also means a lower premium.

What Does Homeowners Insurance Cover?

You’re buying two types of coverage with homeowners insurance. First, you’re covering your property against loss because of damage (fire, tornado, etc.) or theft (burglary, home invasion, etc.). Some events like floods and earthquakes are excluded. They can be covered under a separate policy.

Generally, you’ll be insuring your home, any outbuildings (garage, garden shed, and gazebo) and the possessions within them. Not everything inside will be covered. Typically there are limits (often $500 or $1,000) on jewelry, antiques, and collectibles. You can purchase additional coverage in a “rider” for these items if needed.

The second coverage is for liability. You could be held responsible for damage done to others or their possessions while they’re on your property. Insurance can cover you if you’re held to be liable for their loss.

More About Coverage for the Home Itself

When most people think of homeowners insurance, they think of fire protection. They’re right. Losing a home to fire would be a financial crisis for most families, so homeowners insurance is a must. In fact, almost all mortgage companies require a borrower to carry insurance on their home.

The property portion of your homeowners policy will pay you to repair or rebuild your home if it’s damaged or destroyed by fire, hurricane, lightning, or other disaster included in the policy. Normal wear and tear is not covered.

As mentioned, garages (attached or detached) and outbuildings are generally covered.

Coverage for personal belongings

The property coverage also covers most of the belongings inside your home and buildings. Coverage includes losses due to fire, theft, or other peril included in the policy.

Policies generally limit the total amount of coverage for possessions. Often the limit is equal to the value of the building itself or a percentage of the building’s value. Possessions include your furniture, appliances, electronics, and anything stored inside your home. Most policies include these items if you take them with you on a trip as well.

As mentioned, there are exclusions for expensive items like jewelry, antiques, artwork, collectibles, coins, etc. You’ll find you’re covered but only up to a fairly low amount, like $500 or $1,000.

Landscaping on your property is usually covered for damage by theft, fire, and lightning. Typically up to $500 per item. Damage caused by wind or disease is excluded from coverage.

Liability coverage

If someone gets hurt on your property, there’s a good chance that you’ll be held liable for their loss or personal injury. The liability portion of your homeowners policy covers you and your family members, including pets (think dog bite). It will pay if others suffer injury or property damage while on your property. The homeowners policy will have limits as to how much it will pay.

Liability risk increases as you get into your 50s and begin to accumulate some wealth. When you were young, you had few assets that could be taken in a liability suit. The more you have accumulated in savings and other accounts, the more you have to lose in a liability case.

In many cases, it’s wise to consider purchasing an “umbrella” policy that increases liability coverage above what’s normally available in a homeowners policy, often to $1 million or more. Given the cost of hospitals and long-term care, these policies are becoming necessary.

Coverage for additional living expenses

Damage to your home could make it unlivable. That’s where coverage for additional living expenses (hotels and restaurants) comes into play. Your homeowners policy will cover those expenses up to a certain daily amount if you need to leave your home while it’s repaired or replaced.

Single or multi-family home coverage

After your children move out, you may choose to downsize. Depending on what choice you make, you’ll need to have appropriate homeowners insurance for the type of dwelling you own.

For single-family homes, you’ll want an HO-3 policy. It includes coverage for the building, your possessions, and liability coverage. Also covered are claims due to riot, smoke, collision by vehicles and aircraft, and other perils.

For multi-family homes, there’s an endorsement that’s added to the HO-3 policy for risks associated with renters.

If you’ve chosen to move to a mobile home, you’ll need an HO-2 policy.

Renters need an HO-4 policy. Your possessions are covered like the HO-3. You’re also covered against third-party liability losses.

Condominium and co-op owners will need an HO-6 policy. Coverage is for the portion of the building that the policyholder owns. It is also for possessions, as in the HO-3, liability for others, and additional living expenses.

How Much Will You Receive If You Suffer a Loss?

When you buy homeowners insurance, you expect to be paid if you suffer a loss. How much you get paid will depend on some of the terms of your policy. With the wrong terms, you could be badly surprised if you suffer a loss.

Four terms are critical in your coverage. “Actual Cash Value” is what an item would be worth if you were to sell that item today or buy a similar item. Take your computer for instance. You might have paid $600 for it new, but if you were to sell it today, you’d be happy to get $50. If your computer is stolen and you carry actual cash value insurance, you’ll receive $50 for it.

Your insurance contract might call for “Replacement Cost” coverage. In that case, you’ll be paid to “repair, rebuild or replace losses” without any deduction for use. In other words, if your computer cannot be repaired, you’ll be paid to replace it with one with similar power, memory, and features at today’s prices.

A third type of coverage is called “Guaranteed/Extended Replacement” cost.

It will pay to rebuild a home as it was prior to the loss, even if the cost is greater than your policy limit.

The fourth coverage, “Ordinance Law,” is what most people think that they have, but may not. It’s especially important for older homes. Ordinance refers to local building code requirements for homes. Any construction that repairs or rebuilds your home will need to meet current codes. Rebuilding it to the older standard would not be an option. That could add significant costs to the job. Ordinance Law coverage will pay for any of those upgrades, even if that amount is greater than the policy limit. It excludes upgrades required by new building codes. That requires an “Ordinance Law” policy.

How Often Should You Review Your Homeowners Insurance Policy?

Experts suggest that you review your homeowner’s policy annually.

First, you want to make sure that the coverage you have is appropriate for your needs. Life has a way of gradually changing. Your homeowners insurance needs will gradually change, too. Not only will what you need to insure change (jewelry or collectibles acquired over the years), but your need for coverage, too.

Secondly, the specifics of your coverage change too. When you were young and had a limited net worth, a low deductible was important. Now that you’ve accumulated some assets, you can afford a higher deductible.

At the same time, your liability coverage may be insufficient. You wouldn’t want to put a lifetime of savings at risk if someone fell on your property and you lost a liability suit. You need to have sufficient liability coverage.

What Should I Pay for Homeowners Insurance?

Prices for homeowners insurance vary widely. In part, this is because of the value being covered. Naturally, it will cost more to insure a $400,000 home than one that’s valued at $150,000. The risk of fire or theft also plays a part in the cost. The coverage you choose will also make a difference.

Another significant factor is where you live. For example, according to Forbes, if you live in Utah, the average annual cost for $350,00o in dwelling coverage is $643. The average in Florida for the same coverage is $2,512.

Why You Won’t Review Your Policy

Some industry studies indicate that over 40% of homeowners have not reviewed their policy within the last two years and that a significant number of them had too much, too little, or the wrong coverage.

Why is that?

• Too little time: We’re all busy with things that have to be done right now. Getting around to reviewing a homeowners insurance policy just isn’t high on our to-do list.
• Don’t understand the policy:  Most of us don’t like or understand “legalese,” so we want to avoid reading things like insurance policies. The terms are unfamiliar and confusing.
• Afraid to make a mistake: Homeowners insurance is important. Instead of risking a mistake, we do nothing, which is a mistake in itself.
• Trust someone else will look out for you: We believe that our insurance agent is looking out for our best interest. While many agents do, it’s always a good idea to check their work.

What Not Reviewing Your Policy Could Cost You

There are two costs to not reviewing your policy annually.

The first is that you may be paying too much for your insurance, or you may be buying coverage that you don’t need. Which one of us wouldn’t want to save a few hundred dollars a year?

The second is that having the wrong coverage could cost you tens of thousands of dollars if you have a claim. Getting $50 for a computer that will cost $500 to replace is painful. Repeating that for everything in your home could mean financial ruin.

In Summary

For most of us, our home is the biggest financial item we own. Protecting our home and its contents is important. The homeowners insurance that we buy to protect it has many options and must be carefully selected to avoid expensive mistakes.

• Homeowners Insurance When You Downsize
• When Empty Nesters Move Out of The Family Home
• Stretching Auto Insurance Dollars as You Approach Retirement
• Should You Buy Home and Auto Insurance Endorsements?
• Why Empty Nesters Should Declutter Their Homes

Reviewed October 2023

About the Author

Gary Foreman is the former owner and editor of the After50Finances.com website and newsletter. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.