Understanding Home Insurance Basics – What Is It and How Does It Work?

Property insurance is highly recommended for a reason. It helps protect your home and belongings from an unexpected financial loss. Since your house is the largest asset you can possibly own, getting home insurance couldn’t be more important.

In Florida, most homeowners make it a point for getting a standard property insurance policy. This presents them with a financial safety net during bad times, such as robbery, theft, damage, or fire. This blog post aims to guide you on everything related to home insurance basics. This will help you understand what really home insurance is, its types, benefits, and lots more. So, without any further ado, let’s get right into it.

What Is Home Insurance?

Also known as home insurance, homeowner’s insurance, property insurance, or hazard insurance, HOI offers financial security to a private residence – a house or an apartment. This insurance policy includes several insurance protections against damages occurring to your home, its contents, loss of unscheduled personal property, and incidents that may occur in the home because of your own fault. But that’s not all. Home insurance coverage also provides protection against natural disasters – earthquake, floods, and the like.

What Does Home Insurance Cover?

Home insurance offers 6 types of coverage to the user. Let’s discuss each type in detail:

Dwelling Coverage

Dwelling coverage is the most crucial aspect of a home insurance policy. Its basic purpose is to protect the home’s structure in its entirety. This, however, does not include the land or home’s content. The coverage protects all the areas, fixtures, and appliances that are permanently attached to the house, meaning the insurance policy covers all the areas attached to your house – porch, garden, terrace, and so on. However, dwelling coverage won’t protect the structures that aren’t attached to your house. For example, if the garage isn’t attached to your house, the insurance policy won’t cover it. What else does dwelling insurance does not cover? Your personal items, such as furniture (tables, seats, fans, etc.).

While dwelling coverage varies from state to state and region to region, the insurance policy typically covers damages that may occur due to the following unfortunate events:

• Theft
• Fire or smoke
• Windstorm or sandstorm
• Flood
• Earthquake
• Explosion
• Vandalism
• Damage from a vehicle or an aircraft
• Falling object

If the damage to the attached structures occurs due to the above reasons, dwelling coverage will take care of it all. Like any other policy, dwelling coverage is susceptible to limits and deductibles. When you purchase a home insurance policy, you decide on your dwelling coverage limit, which is usually based on your home’s rebuild cost.

Other Structures Coverage

Other structures coverage is another most important part of homeowners’ insurance that aims to cover repair or replacement costs of structures other than your home. This includes your fence, garage, shed, patio, in-ground swimming pool, gazebo, and detached garage. However, the insurance will only cover the financial loss if it arises due to a covered risk such as theft, hail, falling objects, and all of those stated above.

Other structures coverage is based upon 10% of your dwelling insurance. For example, if you have $500,000 in dwelling coverage for your house and attached features, you may have approximately $50,000 for your other structures coverage. In case you are remodeling your house and are thinking of adding – let’s say – an outdoor pool or a gazebo, you should re-examine your other structures insurance to see if it is sufficient enough to cover the damage expense of the other structure.

If the total amount of the other structures you build are over your insurance limit, you will be called underinsured. For instance, you built a garage and a patio for $55,000, and your insurance limit is $50,000, you will be underinsured by $5000. In this case, you will need to contact your insurance company.

Personal Property Coverage

As the name implies, this form of coverage is applied to your personal property – all the things that you own. This includes your electronics, furniture, clothing, and the likes. Every home insurance policy covers personal property coverage. This type of coverage is designed to pay the repair or replacement cost of your belongings after an unexpected incident such as fire, robbery, vandalism, etc.

There are two types of personal property coverage:

• Replacement cost – in this policy, you receive payment for the cost of a new item, which you will purchase in order to replace the lost or damaged item.
• Actual cash value – a sum is paid on the basis of the current value of a new or repaired item.

Also, keep in mind that personal property coverage has specific limits on the amount of payment for repair and replacement. Therefore, it’s crucial to know the limits of your personal property coverage. Most renters have this misconception that their landlord’s insurance policy will cover their belongings, too. However, usually, the personal property coverage doesn’t extend to protecting the renter’s belongings. Moreover, the coverage will only insure items that have succumbed to a covered risk. For instance, if you have lost your personal belongings in a hotel room, the insurance policy will not cover the loss. To be certain about your coverage policies, contact your insurance company.

Additional Living Expenses Coverage

Simply known as ALE coverage, Additional Living Expenses Coverage offers compensation when you fail to live in your resident because of an insured loss, and while your home is getting repaired. The ALE insurance provides you with a certain amount of money that lets you maintain your lifestyle. It will also compensate you for additional costs that may incur as a result of living elsewhere when your house has been shattered.

Furthermore, the policy allows you to maintain your privacy and freedom in your temporary home. This coverage is useful because it takes off a lot of pressure in unfortunate times. The policy purchaser is at ease knowing that you will have a roof over your head in case of a major disaster. However, when considering ALE, you should speak to your insurer first. Don’t simply head out to any hotel you like, assuming that the expense will be covered by your insurance company. You should have your insurer’s approval before claiming the policy. Insurance companies usually assess the claim situation and then inform you are eligible for the coverage in your situation.

Below are a few things that an insurance company will agree to pay for under the ALE coverage policy:

• Food expenses – restaurant bills if your kitchen got damaged
• Costs for your temporary living space – a hotel, motel, rental house, boarding house, and the likes
• Transportation costs in case the temporary location is far from your workplace, markets, etc.
• Laundry costs in case you don’t have access to your dryer or washing machine – it got destroyed or stolen.
• Furniture rental costs – special items that are necessary for your daily use

Remember that ALE doesn’t cover financial charges for your property or belongings that got lost or damaged. That would be covered by other elements of your homeowner’s insurance policy.

Liability Coverage

This part of your homeowner’s insurance policy protects you from lawsuits filed against you for property damage or injuring someone else accidentally or due to carelessness.  Homeowner’s liability coverage also covers for damage caused by your pet.

Generally, liability coverage begins at $100,000. That being said, you should always discuss whether you should opt for a greater level of protection with your insurer. If you own assets worth more than the liability limits of your insurance policy, consider umbrella coverage or excess liability policy. This is a type of insurance policy that covers a greater limit.

Liability coverage is also known for covering medical bills for visitors. This means if any of your guests suffer from an accidental injury due to your fault and at your home, the insurance company will pay for the medical expense for you.

Liability coverage may also be applied when a person is injured or hurt on your property, which, in turn, prevented them from reaching work. You will be held accountable for the wages they lost due to the injury. In this case, a liability insurance policy will take full responsibility for the expense. If worse comes to worst and someone died on your property due to an accident in your home, liability coverage will prevent you from paying for funeral costs from your own pocket.

Medical Payments Coverage

Another important element of home insurance is medical payments coverage. It’s the type of home insurance policy that covers finances in case a guest, visitor, or neighbor gets injured at your home, whether you are to blame or not.

Generally, medical payments coverage has a limit of $1000 – $5000. However, this amount varies from state to state. As compared to liability insurance, medical coverage offers much lower coverage. Here’s an example of when you may need medical payments coverage. A friend visits you, and they suffer from a severe cut on your porch. You take them to the hospital where they require stitches. Instead of paying for the medical bill from your pocket, you can claim medical payments coverage.

What Isn’t Protected by Standard Home Insurance Coverage?

This is one of the most important things you should know in advance of purchasing the coverage; so that you face no confusion or have any misunderstanding while claiming the said coverage.  Under a standard home insurance policy, flooding or earthquakes are not covered. You will need to get a separate policy to get coverage for these disasters which is highly recommended for homeowners in the USA.

Some other things your policy won’t cover is damage caused by mold, bacteria, and infestations. The home insurance policy won’t take care of destruction caused by sewerage, wear and tear, nuclear hazards, and stolen cash. To gather more information regarding a standard home insurance policy, talk to your insurer. They will guide you better.

How Does the Price of Home Insurance Vary?

The cost of your home insurance policy depends on quite a few factors, including the condition of your home, your property’s location, the amount of coverage you need, deductibles, and limit policies. The state where you live also impacts the price of home insurance. For example, cities that are at a greater risk of natural disasters usually have higher premiums than states that don’t. Therefore, coastal states such as Texas, Florida, and Louisiana have greater premiums as these places receive crazy storms. You will also have a higher premium on your home insurance if your property is old, as it will be more prone to damage.

Do You Really Need a Home Insurance Policy?

Yes, you do – especially if you live in a state that is prone to natural disasters such as earthquakes, floods, or sandstorms. You should also consider homeowner coverage if your property is super old. Living in an old house or apartment means susceptible to more repair and replacement. To be on the safe side during an unforeseen incident, you should be backed up by a reliable HOI policy.

Having trustworthy insurance coverage will prevent you from paying for unwanted expenses out of your own pocket. Everything will be taken care of by your insurance coverage. You won’t have to compromise on your comfort or lifestyle whatsoever. Plus, you won’t have to go through the trouble of arranging money in a short span and that too all by yourself.

---