Homeowners Insurance: Understanding the Basics
Anyone who has bought, owned, or is planning on buying a home ought to get at least a basic understanding of homeowners insurance and how it works. Read on for a speedy introductory education in homeowners insurance.
What Is Homeowners Insurance?
A homeowners insurance policy insures your home’s structure and the belongings kept within. These insurance plans often come as a package deal, meaning they also cover your liability(responsibility) for any injuries and property damage to others caused by you or members of your family, including your household pets.
Who Needs Homeowners Insurance?
In this case, ‘needs’ is a somewhat subjective term. People who have a mortgage or financing that uses your home or home equity as collateral (like a home equity line of credit) may be obligated as a part of the contract with their lender to purchase and maintain an insurance policy of a certain value. These individuals will need homeowners insurance.
For people who own their home outright without any liens or contracts dependent upon having a policy, they don’t technically need a homeowners insurance policy. However, it’s still a very good idea to maintain or purchase a policy, even if you aren’t being compelled to do so. Homeowners insurance plans help cover your home and belongings if they are damaged in different events. Anyone who owns a home should have this insurance for their own peace of mind.
Why Do I Need Homeowners Insurance?
Homeowners insurance helps to protect your investment in your home. It does this in several ways, including:
- Covering your personal belongings if something happens to them. Personal belongings protection isn’t necessarily limited to the house, either. Your stuff may be protected when it’s elsewhere, too.
- Covering the house and other structures on the property. If your house, shed, detached garage, fence, or even inground swimming pool is damaged, the insurance may help you get it repaired.
- Helping absorb liability risk. When a guest is in your home, you’re liable for their safety. Say someone tripped and fell on your property and required medical attention. You could be held liable for their expenses, but homeowner’s insurance covers those costs.
Here’s a basic list of what is generally covered by homeowners insurance:
- Fire
- Explosions
- Theft
- Hail damage
- ‘Regular’ wind damage
- Lightning damage
- Vandalism
- Damage done by vehicles (cars, trucks, planes — policies usually don’t discriminate)
- Riots
- Damage caused by frozen pipe
You’ll Probably Pay a Deductable
As with any type of insurance, if you have to file a claim, you’ll likely have to pay a deductible. A deductible is the portion you pay before insurance covers the rest. How much your deductible is will depend on your specific policy. You can expect deductibles to range from $1,000 to $2,500, though some are higher or lower.
What is Not Covered by Home Owner’s Insurance?
Homeowners insurance helps protect your home, but it’s not all-encompassing against every issue. There are some disasters or events that a regular policy simply won’t cover. Earthquakes and floods are generally not covered by homeowners insurance, for example. There several other common exemptions, including:
- Mold
- Insect or animal infestations
- Normal wear and tear
- Landslides
- Damage caused by government action
- Damage or inhospitality caused by a nuclear event
- Liability due to dog bites or attacks
- Wind damage where hurricanes are a common occurrence
In some cases, you may be able to purchase additional policies to make sure you’re protected from some of these problems.
Shopping for a Policy: Things to Consider
There are some specific numbers you’ll want to keep in mind when shopping for a homeowners insurance policy. If you’re required to carry a policy, such as for mortgage insurance, your lender may have a certain minimum of coverage that you have to meet. Be sure to let the agents preparing quotes for you know about your loan conditions. They can contact the lender if you need help figuring out the requirements.
Here are some common phrases that are included in homeowners insurance policies.
Deductible
This is how much you’ll have to pay, or your portion, if you file a claim with the insurance company. That means that you’re responsible for that part of the claim. Sometimes, you’ll have to pay that directly to the insurance company, and sometimes they’ll just take it out of the amount they payout on the insurance claim.
Coverage Limits
You’ll want to make sure your quote is for a homeowners insurance policy with a coverage limit that will pay to rebuild your home, the other structures on the property, and replace your personal belongings. If you’re not sure how much you need, ask a few different agents to help you put together an estimate of how much it may cost to essentially get a do-over if something goes horribly wrong.
Liability Coverage Limits
Look into how much a policy will payout if you’re held liable for an accident on the property. This means that if someone is seriously injured in your home or on your property, including from pet bites, the liability coverage is your responsibility.
Other Considerations
Check what the limits are when it comes to coverage for other structures. Oftentimes, homeowners insurance policies cap the amount that they’ll cover at a certain percentage of the total policy amount. If you’ve got expensive outliers on the property, you’ll want to make sure they’re adequately covered. When it comes to homeowners insurance, it pays to know how your policy works to ensure it is right for you. If you ever have a question, even a hypothetical one, don’t hesitate to contact your agent. It’s their job to make sure you get the right coverage and that you understand the homeowners insurance policy you’re buying.