What Is Homeowner's Insurance And Why Do You Need It?
Homeowner's insurance is a type of insurance that covers your home and belongings in the event of damage or theft. According to Investopedia, it also provides liability coverage if someone is injured on your property. No one ever plans on becoming a victim of theft or natural disaster, but it can happen to anyone. That's why it's important to have homeowner's insurance and to understand what it covers.
According to Kin, homeowner's insurance has been around for centuries, dating as far back as The Great Fire of London. With more than 13,000 homes destroyed, this event was the catalyst for what we know today. Homeowner's insurance has come a long way since then, and it remains one of the most important investments you can make in your home. Still, many people are confused about what exactly it is and what it covers. In this article, we will discuss what homeowner's insurance is and why you need it. We'll also provide some tips on how to get the best rates for your policy.
What is homeowner's insurance?
According to the Insurance Information Institute, homeowner's insurance is a type of property insurance that covers your home and personal belongings in the event of theft, damage, or natural disaster. It also provides liability coverage in the event that someone is injured on your property.
Each policy normally has a policy liability limit, which is the maximum amount that the insurance will pay out in the event of a claim. The standard limit typically starts at $100,000, though the policyholder can opt for a higher limit. Opting for a higher limit provides more protection in the event of a major claim. For personal belongings that may exceed your current policy limits, many homeowners expand their coverage with additional packages in the event of theft, Insurance.com reports.
It's also possible to have more than one insurance policy in the case of someone purchasing a second home. In this instance, a separate policy would need to be taken out for the second home.
How is homeowner's insurance used?
According to Investopedia, homeowner's insurance generally covers four types of perils: interior damage, exterior damage, loss or damage of personal assets/belongings, and injury that occurs while on the property.
Interior damage covers things like water damage from a broken pipe, while exterior damage covers wind or hail damage to the home. Liability coverage applies when someone is injured while on your property. This can include things like a slip and fall accident or an injury sustained from a pet. However, it's important to note that homeowner's insurance may not cover every accident or disaster. For example, it typically doesn't cover flood damage or earthquakes.
In addition to the dwelling and liability coverage, most homeowner's insurance policies also include personal belongings coverage, which pays to replace your belongings if they are damaged or stolen. Certain types of high-value personal belongings such as antiques, firearms, artwork, and jewelry may exceed your policy limits. According to Insurance.com, the standard policy limits for personal property range between $1,000 to $2,500.
How homeowner's insurance works
According to Policy Genius, you should be sure to gather as many details about the incident as possible prior to filing a claim. This includes taking photos or videos of the damage, if possible. The more information you provide your insurance company, the easier it will be to process your claim. Once you have all the necessary information, you will need to contact your insurance company to start the claims process.
The first step is to determine if your policy covers the type of damage or loss that has occurred. If it does, the insurance company will send an adjuster to assess the damage and determine the cost of repairs. The insurance company will then issue a check to the policyholder for the repairs.
According to the Insurance Information Institute, when filing a claim, the homeowner is generally required to pay a deductible, which is the amount of money that the insurance company will deduct from the total claim payout. The deductible can range from a set dollar amount to a percentage, which varies from state to state. For example, if your home is insured for $100,000 with a two percent deductible, your deductible will be $2,000 for each claim filed.
Why you should have homeowner's insurance
Homeowner's insurance is typically required by lenders for anyone who has a mortgage on their home. Realty Times reports that while 95% of Americans have home insurance, that leaves 5% of them unprotected. Not having homeowner's insurance can lead to some serious financial problems if your home is damaged or someone is injured on your property.
According to E2Value, if you don't have insurance and your home is damaged, you will be responsible for paying for all of the repairs out-of-pocket. This can be extremely expensive, and it may even put you in debt. If someone is injured on your property and you don't have insurance, you could be sued for their medical expenses. This could also lead to a loss of assets, such as your home or savings.
Even when you pay off your mortgage, it's still a good idea to keep your homeowner's insurance policy. Your home is one of your most important investments, and it's still at risk of damage from things like severe weather, fires, and theft.
Types of homeowner's insurance
According to Policy Genius, there are eight types of homeowner's insurance policies numbered HO-1 through HO-8. The most commonly-used policy is HO-3 because of broader coverage that includes covering all risks except those specifically excluded in the policy. Commonly excluded perils include earth movement, war, flood, and neglect, among others. If you live in an area prone to earthquakes and flooding, for example, you may need to purchase a separate policy to cover those risks.
According to Investopedia, it's important to note homeowner's insurance isn't the same as a home warranty or mortgage insurance. A home warranty is a contract that covers the repair or replacement of home systems and appliances, while mortgage insurance protects the lender in the event that you default on your loan. Mortgage insurance, in particular, is required when a buyer makes a down payment that is less than 20 percent of the home's cost.
Average cost of homeowner's insurance
Bankrate reports that the average homeowner spends around $1,400 a year on homeowner's insurance. The typical policy includes $250,000 in dwelling coverage, though this can vary from state to state.
States that face a high risk of natural disasters such as tornadoes and hurricanes tend to have higher insurance premiums. For example, the average homeowner in Oklahoma spends $3,593 a year on homeowner's insurance, while the average homeowner in Hawaii spends $378. Other factors include supply chain disruptions, inflation, and the current cost of materials and labor.
However, according to the Insurance Information Institute, there are ways to save money on your homeowner's insurance. Raising your deductible allows you to pay less each month, and you can ask your insurance company about discounts related to making your home less prone to disasters and having a security alarm system. If you have an auto insurance policy, you may receive a discount by bundling your policies together. You may also be able to save money by being a long-time customer, and it never hurts to ask about any additional discounts available.