What Is Homeowners Insurance?
If your home is damaged or you are sued, homeowner’s insurance can help cover the costs. You should purchase homeowners insurance if the bank or mortgage lender requires it. An insurance coverage for your home is something you hope you never have to use, but it can be a lifesaver if something happens to your property.
You can protect yourself financially from potential losses due to disasters and legal actions by purchasing homeowners insurance.
You pay the insurance provider a sum of money (the premium) in exchange for this protection. In exchange, the firm would compensate you for losses sustained due to insured events like fire. If you cause bodily harm to another person or damage their property, your homeowner’s insurance policy might help pay for medical bills and repairs.
Is homeowners insurance required?
Though not mandated by law, mortgage lenders typically ask homeowners to carry insurance on their properties. Homeowners insurance is recommended regardless of whether or not you have a mortgage. A homes policy can provide you with peace of mind by protecting your property and legal rights in the event of an accident.
If you put less than 20% down on a home, you may be required to pay for mortgage insurance in addition to homeowners insurance. (Regardless of the size of your down payment, mortgage insurance may be required for government Housing Administration (FHA) loans and other government loans.) Mortgage insurance protects the lender from financial loss in the event of a loan default.
What does home insurance cover?
There is a lot of fine print in a homeowner’s insurance policy that specifies what is and is not covered. Remember that homeowner’s insurance is meant to cover unforeseen, unintentional damage, and not routine maintenance costs.
Let’s say you check your water heater first thing in the morning and find that it is broken. A normal homeowner’s insurance policy will not cover the cost of a service call. However, if a hailstorm causes damage to your roof, your insurance will likely cover the repairs.
Some unexpected mishaps aren’t covered, either. In most cases, earthquake and flood damage are not covered by standard homeowner’s policies unless additional coverage is purchased.
See What Does Homeowners Insurance Cover for a full explanation of what is and is not covered by your policy.
Homeowners insurance definitions
The six key components of a homes insurance coverage are as follows.
Dwelling insurance compensates you if your home’s structure is damaged.
Damage to detached structures like a shed or fence is covered under “other structures coverage.”
Your furniture, clothes, and devices are all protected under your policy’s personal property section.
If you have to stay in a hotel while your home is being repaired, loss of use coverage will help cover those costs.
Coverage for personal injury and property damage claims, as well as legal defense costs, are provided by liability insurance.
If someone is injured on your property or by your dog and it is not your fault, medical payments coverage will help pay for their medical expenses.
Additional Key Concepts
An insurance claim is a formal request for benefits under an insurance policy. Contact your insurance company (either electronically or over the phone) to report the damage and discuss filing a claim. Depending on your policy details, the insurance company may approve or decline your claim.
The first page of a house insurance policy is called the “Declarations” page. Your premium, coverage restrictions, and the address of the insured property are all clearly shown.
An individual’s share of a claim payment is called the deductible. If you file a claim with your insurance carrier, they will deduct this sum from your total reimbursement. Your house insurance rate will be cheaper if you are ready to pay for some of the repairs out of pocket.
An endorsement is a form of policy modification that can be used to add, alter, or cancel coverage. If you purchase additional coverage, such as against identity theft, your insurer will add an endorsement to your policy detailing the terms of that coverage.
The most your insurance company will pay out for a specific claim. Different types of coverage on a homeowner’s insurance policy will often have varying caps. You might, for instance, set your dwelling coverage at $300,000 and your personal property coverage at $150,000.