Understanding Home Insurance Basics - What Is It and How Does…
Homeowners insurance is a form of property insurance that offers coverage for the damages and losses to your residence. It also includes damaged belongings inside the home, including furniture.
A homeowners insurance policy typically compensates for damage or destruction to the interior or exterior of your home, personal liability harm to others, theft of belongings, and coverage for extra living expenses.
Homeowners Insurance Coverage
Before you opt for a homeowners insurance policy, it is important to know the details regarding the coverage it provides. Most homeowners insurance policies take all basics into account, but they may vary significantly. All policies require you to pay a deductible before providing compensation.
Coverage typically includes destruction or damage due to fire, vandalism, and certain natural disasters. It also takes into account any expenses incurred if someone gets hurt on your property. Here is everything you need to know about homeowners insurance:
This takes into account the structure of your home, wall-to-wall carpets, and built-in appliances. The word “dwelling” encompasses the complete structure of your home, along with any linked structures like a cellar, tool shed, gazebo, or an attached garage.
Your homeowners insurance policy will offer coverage for the rebuilding or repair of your home, which has been damaged from a hurricane, lightning, fire, hail, or any other disaster mentioned in the policy. However, it will not take into account damages caused by routine wear and tear.
Other Structures Coverage
This pertains to structures on your residence that are not physically attached to it. A homeowners policy can compensate for the repair or replacement of unattached structures, such as a fence, detached garage, shed, or guest house if they are affected by a covered risk.
Personal Property Coverage
This takes into account personal possessions inside your home, such as furniture, electronics, clothes and sports equipment. The policy will pay for damages caused due to a covered loss.
Most insurance providers offer coverage for 50%-70% of the amount of dwelling coverage for personal property insurance. It also encompasses off-premises coverage, which means that your possessions everywhere in the world would be covered unless you choose to opt out of it.
Valuable possessions like fur, silverware and jewelry are typically covered. However, there are dollar limits in case they get stolen. If you wish to insure the full value of these items, you can opt for a floater or special personal property endorsement and get your belongings insured for their appraised values.
Plants, trees, and scrubs are also taken into account by a regular homeowners insurance policy, typically up to $500 per item. Covered perils include fire, theft, vandalism, riot, explosion, lightning, and even falling aircraft. However, damage by disease or wind is not covered.
This aspect compensates for damage as a result of bodily injuries to guests on your residence along with other covered expenses as a consequence of negligence. This may include the injured person’s loss of income, medical expenses, pain and suffering, and other issues.
Liability coverage also takes into account damage caused to other people by your pets. Moreover, it also takes into account the legal defense costs in case of a dispute up to the policy limit. Coverage is not just confined to the home, but extends across the world.
Loss of Use Coverage
Loss of use coverage takes into account the expenses incurred in case you need to move out of your residence due to a storm, fire, or some other insured disaster. This aspect will compensate for the extra housing and living expenses that may come up.
For example, if you have to temporarily shift out of your house that is being rebuilt or repaired following a covered accident, loss of use coverage would pay for the cost of living in a hotel or temporary apartment.
Types of Homeowners Coverage
Homeowners policy is not the same across the board. For instance, the least expensive policy would provide minimum coverage, and vice versa.
There are different types of standard homeowners insurance that range from HO-1 to HO-8. They provide different levels of protection, according to the requirements of the homeowner and the kind of residence they own. The main levels of coverage include:
Actual Cash Value
This takes into account the price of the residence along with the value of your personal possessions after deducting depreciation. Accounting for depreciation helps arrive at the current worth of items, rather than the amount you paid for them.
Replacement value policies take into account the actual cash value of your home and belongings without deducting depreciation. This helps you rebuild or repair your home at par with its original value.
Guaranteed/Extended Replacement Cost/Value
This coverage is rather comprehensive as it takes inflation into account when paying for the repairing or rebuilding of your home. The coverage would provide compensation if it exceeds your policy limit.
Some insurance providers offer an extended replacement, which implies a higher coverage than what you purchased. However, there is usually a ceiling, for instance, 20%-25% more than the limit.
Many advisors believe that homeowners must purchase guaranteed replacement value policies. This is because not only do you need insurance sufficient to cover the value of your residence, but also to rebuild your home at its current value.
What’s Not Covered by Homeowners Insurance Policy?
While homeowners insurance can be rather comprehensive, there are several scenarios that it does not take into account, such as acts of war and natural disasters or other “acts of God”.
If you live in an area that is especially prone to floods, hurricanes, or earthquakes, you may benefit from an additional policy for flood insurance or earthquake insurance. You can even add on sewer and drain backup coverage and identity recovery coverage.
For more information about how homeowners insurance works, click here.
10 Benefits of Homeowners Insurance Policy
Purchasing a house is one of the most important investments for many people. It is a considerable decision that requires careful planning and research.
However, some people feel that buying homeowners insurance may be a waste of money because they are investing for an uncertain cause. However, that is far from the truth.
It is always a good idea to spend a little in order to steer clear of major financial setbacks later on. Here are some of the top benefits of buying homeowners insurance:
1. Protection of the Main Structure
The primary purpose of a homeowners insurance policy is to protect your main residence, which is the part of your home you actually inhabit. For instance, if you do not carry homeowners policy and face a house fire or a natural disaster like a hurricane, you would incur a major loss.
It is best to get your residence insured up to 100% of its value. However, insurance of up to 80%-90% is also common. Most homeowners policies cover major damage, minor damage, and total replacement costs.
2. Protection of Detached Structures
Homeowners insurance coverage is not just restricted to your residence. It also takes into account other related areas, such as your shed, deck, garage and fence.
The coverage of detached structures is typically up to 10% or so of the coverage limit. However, you can customize your policy if you require extra coverage for detached structures in your home.
3. Covers Home’s Contents
You can opt for add-ons and ensure coverage for your belongings inside the house, such as electronics, furniture, and expensive home appliances. Before signing up for a homeowners policy, take an inventory of all your belongings inside your home.
In case a covered disaster, such as a storm, destroys or damages some of these items, a homeowners policy can provide full or partial compensation, depending upon the type of policy.
4. Protection from Natural Disasters
Natural disasters can result in a heavy loss to homeowners. The expense of rebuilding damaged property can cause a major dent in your pocket and use most of your savings.
If you opt for a detailed home insurance plan, you are likely to be protected against the damage caused by covered natural disasters. Such a policy usually provides compensation for calamities, such as landslides, floods, and earthquakes in return for a monthly or yearly expense.
Some people may consider homeowners insurance policy an unwanted expense, but it can provide major relief if an unforeseen event occurs. The benefits offered by the policy certainly outweigh the investment you make. If you are not keen on spending a large amount on homeowners insurance, you can always opt for a more basic variant of the policy.
6. Protection from Lawsuits
A homeowners policy can protect you and your family against lawsuits related to property. It may offer compensation in case you accidently damage another person’s property, in terms of mechanical or fire damage. Moreover, the insurance plan can also take care of the medical expenses in case a guest sustains an injury on your property.
7. Covers Extra Living Expenses
Homeowners insurance offers more than just repairing damaged structures. If your home suffers considerable damage due to an unforeseen event, it may become uninhabitable for the time being.
While your place is being repaired or rebuilt, you may need to temporarily move out. In this case, a homeowners policy will take into account your accommodation, food, as well as travel expenses.
8. Liability Coverage
This may be one of the most important reasons you need to carry a homeowners policy. If a guest gets injured at your residence, you may have to pay hundreds of dollars’ worth of medical expenses.
A homeowners policy can take care of this cost and save you from paying considerably high bills. However, this policy does not take into account your or your family member’s injuries or property damage.
9. Peace of Mind
A homeowners policy provides considerable relief. You don’t have to live with the constant fear of bearing the expenses to be incurred due to damage to your property.
Whether you own a sprawling mansion or a compact apartment, a homeowners insurance policy can prove to be quite beneficial. Once you have chosen your policy and paid the premium, you can sit back and relax as the protection of your residence is no longer your responsibility.
10. Fulfilling Mortgage Requirement
Many people are unaware that carrying homeowners insurance is mandatory in certain circumstances. For instance, if you are thinking about taking out a mortgage loan, your lender is likely to require you to purchase a limited level of homeowners policy for protection in case of a hazard. This is necessary because your residence would become the lender’s collateral.
How to Save Money on Homeowners Insurance Policy
Homeowners policy has several variants, which means there is also a difference in their prices. Here are 3 tips to keep in mind while selecting a policy:
1. Do Your Research
Make sure you shop around thoroughly before settling on a particular policy. This may take some time, but it could save you considerable money. Explore insurance agents, customer guides, and different insurance companies.
2. Opt for a Higher Deductible
Deductible is the amount of money you need to pay for a covered loss before your insurance provider begins to compensate. If you choose to go with a higher deductible, you can benefit from paying lower premiums.
3. Check for Discounts
Make sure you are cashing in on all applicable discounts. Different insurance companies offer different kinds of discounts in return for keeping your home safe. For instance, having stronger bolts, smoke detectors, an alarm system, and being a non-smoker may make you eligible for a discount.
Final Thoughts on your Homeowner’s Insurance Policy
Purchasing a home usually requires years of savings and research. Unforeseen events happen without warning and can substantially damage or destroy your home. In order to protect yourself against a major financial loss, it is a good idea to opt for a homeowners insurance policy. You are likely to find that the benefits of the policy exceed the cost you incur for it.