How to Get Homeowners Insurance

Homeowners insurance is a form of property insurance that covers loss and damage to an individual’s home, along with furniture and other household property. Home insurance also provides liability coverage for accidents in the home or on the property.

KEY SHOTS

Homeowner’s insurance is a form of property insurance that covers loss and damage to an individual’s home and property in the home.

Policies typically cover interior damage, exterior damage, loss or damage to personal property, and injury to property.

Every home insurance policy has a liability limit that determines the amount of coverage the insured has in the event of an unfortunate event.

Home insurance should not be confused with home warranty or mortgage insurance.

Understanding Homeowners Insurance

Homeowner’s insurance typically covers four types of incidents on the insured property: interior damage, exterior damage, loss or damage to personal property/belongings, and injury that occurs on the property. When making a claim for any of these incidents, the homeowner will be required to pay a deductible, which is effectively the insured’s out-of-pocket expenses.

For example, let’s say that a claim has been made with the insurer for interior water damage that occurred in the house. The cost to restore the property to habitable condition is estimated by the adjuster at $10,000. If the application is approved, the homeowner is notified of their deductible amount, say $4,000, according to the policy. The insurance company will pay the excess, in this case $6,000. The higher the policy deductible, the lower the monthly or annual home insurance premium.

Every home insurance policy has a liability limit that determines the amount of coverage the insured has in the event of an unfortunate event. Standard limits are usually set at $100,000, but the policyholder can opt for a higher limit. In the event of a claim, the liability limit sets the percentage of the coverage amount that would be spent to replace or repair damage to the property’s structure, personal belongings and the cost of living elsewhere while the property is being worked on.

Acts of war or acts of God, such as earthquakes or floods, are usually excluded from standard homeowner’s insurance policies. A homeowner who lives in an area prone to these natural disasters may need to obtain special coverage to insure their property against floods or earthquakes. However, most basic homeowners insurance policies cover events such as hurricanes and tornadoes.

Household insurance

Home and mortgage insurance

When applying for a mortgage, the homeowner is usually required to provide proof of home insurance before the financial institution will lend any funds. Property insurance can be arranged separately or with the lending bank. Homeowners who prefer to insure themselves can compare multiple quotes and choose the plan that best suits their needs. If the homeowner does not have their property covered for loss or damage, the bank can get it for them for an additional fee.

Homeowners insurance payments are usually included in a homeowner’s monthly mortgage payments. The lending bank that receives the payment allocates a portion of the insurance coverage to an escrow account. Once the insurance bill is due, the amount owed is paid from this escrow account.

Home insurance vs. home warranty

While the terms sound similar, home insurance is different from a home warranty. A home warranty is a contract that provides repairs or replacements for home systems and appliances such as ovens, water heaters, washers/dryers, and swimming pools. These contracts usually expire after a certain period of time, usually 12 months, and the homeowner does not need to purchase them to qualify for a mortgage. A home warranty covers problems and issues that result from poor maintenance or the inevitable wear and tear of items – situations that are not covered by homeowners insurance.

Home insurance vs. mortgage insurance

Home insurance is also different from mortgage insurance. Mortgage insurance is usually required by a bank or mortgage company for home buyers who put down less than 20% of the property price. The Federal Home Administration also requires it from those who take out an FHA loan.

This is an extra fee that can be included in regular mortgage payments or it can be a one-off amount charged when the mortgage is issued.

Mortgage insurance covers the lender for assuming the extraordinary risk of a home buyer who does not meet the usual mortgage requirements. If the buyer were to fall behind on payments, the mortgage insurance would cover it. Essentially, while both deal with residences, homeowners insurance protects the home owner and mortgage insurance protects the mortgage lender.