Minnesota Homeowners Insurance: Types of Coverage and Reimbursements to know when when buying a home.
Quick Takeaways
- In Minnesota, average homeowners insurance premiums have increased by 39 percent over the past seven years, and 15 percent in 2023 alone.
- Homeowners insurance is a “package policy”—this means it covers both actual, physical property and legal responsibility for injuries that happen while on that property.
- There are three common levels of coverage: actual cash value, replacement cost value, and guaranteed/extended replacement cost.
- Standard policies may have weather exceptions that do not cover flooding, earthquakes, or poor maintenance.
What Is Homeowners Insurance?
A homeowners insurance policy covers a homeowner for unexpected losses at their home or property. It can include provisions to repair or rebuild the property, replace assets within the home, cover accidents that happen to the homeowner or someone else on the property, or even pay for living expenses if a covered incident forces them to live elsewhere temporarily.
Is Homeowners Insurance Required?
Typically a mortgage lender will require a borrower to have a home insurance policy as long as they have a mortgage, if their mortgage is paid off, or if they’ve paid for the home outright, no laws require them to maintain insurance.
What Does Home Insurance Cover?
There are two types of coverage provided by a homeowners policy:
Named Peril: coverage pays only if the damage is caused by a specifically named peril. The most popular policy, HO-3, covers the home structure and personal belongings for disasters including fire, hail, lightning, freezing, theft, and vandalism.
Open Peril: coverage pays in all instances except for when the damage is caused by anincident that is specifically excluded. HO-5 insurance policies may offer more extensive, open-peril coverage, but they often have higher premiums and more eligibility requirements.
How Much Does Home Insurance Pay?
There are three basic ways homeowners insurance will reimburse a homeowner in case of a loss:
Actual cash value (ACV): A homeowner will be paid the cost to fix the dwelling and replace their personal belongings, minus any property wear and tear or aging.
Replacement cost value (RCV): The insurer will reimburse the money needed to make repairs at today’s cost. In some instances, insurers will pay actual cash value, then later reimburse for replacement cost above and beyond that amount when the homeowner provides receipts for purchases.
Guaranteed or extended replacement cost: A guaranteed replacement policy means the insurer will pay the actual cost to replace a home at the time of loss, regardless of the amount listed on the policy.
What Are Homeowners Insurance Premiums?
A homeowners insurance premium is the sum homeowners pay to keep their policy active. Homeowners may pay the premiums on a monthly, quarterly, or annual basis. Buyers with a mortgage often have the premium deducted from their escrow account. Several factors determine insurance premiums including the credit history (in some states), the age of the house, square footage, condition of the property and location. Insurance premiums in Minnesota are increasing faster then the national average, this is mainly due to claims related to storm/weather events.
Home Warranty vs. Home Insurance
A home warranty protects homeowners from the cost of repairs in the first year of homeownership. Home warranty plans cover service, replacement or repair of appliances, HVAC, electrical and plumbing systems. Meanwhile homeowners insurance is designed to cover damage from wind and hail, fire, lightning, water damage, etc. There may be some overlap based on your client’s policy, but in general, a home warranty covers damage that homeowners insurance usually doesn’t. Some clients may benefit from purchasing both.
