Homeowners Insurance

Buying a house is an excellent investment. It relieves you from the burden of the monthly rent, provides you with peace of mind, and is profitable in the long term. However, owning a property is not only about purchasing it: the property should be maintained and protected. 

To keep your investment safe from harm that can come from perils, accidents, or theft, you must obtain a property insurance plan. Picking the right insurance plan prevents you from getting into financial trouble in case such inconvenient incidents occur.

If you’ve just bought a property to reside in and want to keep its roof over your head safe and sound without taking the risk of a financial collapse, you should obtain homeowner insurance. 

This guide includes:

What Is Homeowners Insurance?

Homeowner insurance protects your home and its contents in the case of damage caused by windstorms, fires, vandalism, theft, and other certain types of perils and accidents. It covers the expenses of the replacement and repair of your property and your personal possessions. 

Homeowner Insurance in a Nutshell

  • Covers damage and losses to your property and its contents.
  • There’s a liability limit to every homeowners insurance plan, specifying the sum of the property insurance coverage.
  • Floods, earthquakes, and water backups are not included in the homeowners insurance policies. 
  • Exterior and interior damages, personal possessions, and on-property injuries are included in the coverage. 
  • Homeowners insurance is not to be mistaken as home warranty or mortgage insurance.
  • Homeowners usually cover all events unless specifically stated otherwise.

What Does Homeowners Insurance Cover?

Homeowners insurance grants coverage for your financial loss or property damage in case of a covered accident or peril. A typical homeowners insurance plan includes the following:

Dwelling Coverage

Dwelling coverage is part of a home insurance policy that protects your property against damage deriving from fire, smoke, vandalism, severe weather, theft, lightning, and the like. It’s useful to note that the dwelling coverage doesn’t apply to damages done by natural disasters such as floods and earthquakes. 

Personal Liability Coverage

Homeowners insurance coverage includes the medical and legal expenses you may encounter in the case of someone getting injured on your property. It covers the lawsuits that are filed against you as well as the medical treatment of the injured. Inpatient expenses, X-ray, and ambulance ride costs are included in the medical coverage as well. 

Personal Assets Coverage 

Your furniture, personal possessions, appliances, and electronics are in your property; in short, the contents of your property are included in the homeowners insurance coverage. Your house insurance can either cover the cash value or the replacement of your personal assets depending on your preference. Personal assets of high value such as jewelry or artwork may require you to acquire additional coverage for an extra fee.

Your personal belongings are typically covered in the events of the following perils: 

  • Smoke
  • Theft
  • Explosions
  • Fire
  • Lightning
  • Volcanic eruptions
  • Windstorms
  • Hail
  • Falling objects
  • Weight of snow, sleet, and ice
  • Sudden damage caused by a power surge
  • Water overflow caused by household systems
  • Riots
  • Damage caused by vehicles or aircraft
  • Sudden breakdown of a heating or cooling system

Loss of Use Coverage (Additional Living Expenses Insurance)

If your home becomes uninhabitable as the result of a covered incident and you’re obliged to reside someplace else temporarily until your property is repaired or rebuilt, the loss of use coverage pays for the expenses related to your temporary living arrangement. Incidents covered by the additional living expenses insurance include imminent or immediate hazards during which you’re barred from your residence by the local authorities. 

Additional Coverage

  • Earthquake and Flood Coverage: Natural disasters such as earthquakes and floods are not covered by typical homeowners insurance policies. However such coverage is usually available as add-ons offered by the insurers. 
  • Manufactured or Mobile Home Coverage: The insurance plans that cover such structures are generally offered as separate homeowners insurance policies by the insurance companies. 
Type of overage What it covers
Dwelling coverage Repair or rebuilding expenses of the property structure and the attached structures
Detached structures Repair or rebuilding expenses of the detached structures on the property, such as sheds or fences
Personal assets Replacement or payment of the cash value of damaged personal belongings
Personal liability  Legal and medical expenses if someone was accidentally injured on your property or you cause unintentional property damage 
Loss of use Temporary living expenses during the repair of your damaged residence if uninhabitable
Medical payments Medical expenses of a person injured on your property/a person injured by your pet or a family member of yours regardless of whether or not being on the property 

Do I Need Homeowners Insurance?

If you’ve purchased a property, it’s in your best interest to purchase a homeowners insurance policy to safeguard your investment against potential risks that can cause immense financial losses. Although it’s an in-advance expense, homeowners insurance is much more affordable than paying out-of-pocket for the repair or rebuild of the property following severe damage.

If you’re getting a loan to purchase a property, on the other hand, your lender will probably demand that you obtain a homeowners insurance plan anyway. The reason for them to place such a request is to secure the loan they’re making in the case of a fire, storm, vandalism, or other perils and accidents. Even if you purchase your property without a loan, homeowners insurance is crucial to maintain the value of your property as a long-term investment. 

Homeowners Insurance vs. Landlord Insurance

  • Homeowners insurance applies to the property of residence while landlord insurance covers the rental property of the owner. 
  • Homeowners insurance covers the contents of the property whereas landlord insurance doesn’t unless they belong to the landlord.
  • Homeowners insurance covers loss of use when the property is uninhabitable. Landlord insurance, however, covers the loss of rent. 

Homeowners Insurance vs. Home Warranty

Although homeowners insurance and home warranty sound somewhat alike; the two have quite distinct coverages. A typical home warranty is a temporary contract that’s usually valid for twelve months and covers the replacement and repair expenses of appliances and home systems including heaters/coolers, pools, ovens, fridges, and the like. They’re not obligatory for the homeowner to purchase as they’re getting a mortgage. However, home warranty contracts also cover wear-and-tear and breakdowns resulting from inadequate maintenance, whereas homeowners insurance doesn’t offer such coverage. 

Homeowners Insurance vs. Mortgage Insurance 

The definition of homeowners insurance completely differs from that of mortgage insurance, despite both being relevant to the purchase of a property. Mortgage insurance covers the potential loss of the mortgage lender, whereas homeowner insurance protects the property owner. 

A mortgage insurance policy is usually demanded by the mortgage company or the bank you’re getting a loan from during the purchase of your new home. That is if you’re making a down payment that’s less than twenty percent of the property cost. You’re required to obtain mortgage insurance to take out an additional Federal Home Administration loan as well. 

Mortgage insurance covers the financial loss of the lender in case the borrowing property buyer fails to pay the required amount within the required time. 

The Wrap-up 

Obtaining a homeowners insurance policy is crucial to prevent the emergence of financial bombshells following an inconvenient incident such as an accident or a peril damaging your property.

It’s in your best interest to pay for the homeowners insurance in advance to avoid stinging payments that may ruin your financial future. Therefore, take precautions and protect both the roof over your head and your investment. 

FAQ

What is home insurance?

Home insurance is a policy that covers the expenses to fix the damage caused to your property by fires, lightning, theft, vandalism, accidents, or severe weather conditions like windstorms. 

What does homeowners insurance cover?

The typical coverage of a homeowners insurance policy includes dwelling expenses, loss of use, medical and legal expenses that are relevant to personal liability, and personal assets. 

Why do I need homeowners insurance?

You need to obtain homeowners insurance to avoid unaffordable out-of-pocket expenses in case your property gets damaged by a peril or an accident. Homeowners insurance also helps maintain the value of your real estate investment. Moreover, if you’re getting a loan for your property purchase, your mortgage lender will probably demand that you obtain homeowners insurance in order to secure the loan they make. You can relief when you know you have an insuranced property

What is not covered by homeowners insurance?

Coverage of homeowners insurance doesn’t include earthquakes and floods, problems due to inadequate maintenance and natural wear-and-tear of the property content, and the damage done by insects.

What is the difference between homeowners insurance and mortgage insurance?

A homeowners insurance policy protects the homeowner’s property and financial future whereas a mortgage insurance policy covers the potential financial loss of the mortgage provider in case the home buyer fails to meet the mortgage requirements. 

How does homeowners insurance work?

Homeowners insurance covers the damage caused to your property by covered perils/accidents by either paying the cash value or replacing/repairing the item/structure in question. 

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