Most people understand that it’s important to buy home insurance, but they may not understand why it’s so important. The policy itself can be complex and hard to understand, especially if you’ve never bought home insurance before, which can make the system even more intimidating.
Fortunately, once you understand the basics, you’ll realize that homeowner’s insurance is relatively straightforward, and it can both protect you and save you money.
What Home Insurance Covers
Generally speaking, home insurance covers the costs associated with:
- Stolen items can be replaced.
- Fire and smoke damage. Fire and smoke damage can be repaired.
- Storm and hail damage. Damage from heavy winds, rain, lightning, and hail may be covered.
- Damage from falling objects. You may also be compensated for damages related to falling objects.
- Damage from various appliances and home systems. These include things like heating and cooling systems, plumbing systems, and electrical systems.
- Living expenses incurred from damage. If you’re forced to live in a hotel temporarily as your home is repaired or rebuilt, you’ll be able to tap into your insurance policy for reimbursement.
Additionally, your homeowner’s insurance may cover more than just your home. For example, it may include:
- Attached structures. These include things like covered garages and patios.
- Additional structures. Sheds, fences, and other external structures may also be covered.
- Personal property. Personal possessions are included in most policies.
- Personal liability and guest medical costs. These kick in if a guest is hurt on your property.
Of course, it’s important to realize that not all homeowner’s insurance policies are alike. Depending on where you live and the company you work with, your home insurance policy may not cover damage from certain types of natural disasters. Be sure to review what your insurance policy covers.
How Home Insurance Works
You’ll purchase home insurance through an insurance company and/or an insurance agent. Your policy will define a number of items, including the types of coverage available. You’ll also need to figure out the limits, or the maximum amount the policy will pay out in different events.
Home insurance also comes with a deductible, and a fixed premium. Your deductible is the amount of money that comes out of pocket before your insurance can be used to reimburse you for damages. For example, if your deductible is $5,000 and you incur costs of $12,000, you’ll need to pay $5,000, and your insurance policy will likely cover the remaining $7,000.
Your premium is the amount of money you’ll pay to keep the policy. Depending on the nature of your insurance policy, this could be a monthly cost to you, or it could be rolled into your mortgage escrow account. Many homeowners who are required to have a homeowner’s insurance policy will bundle it with their property taxes and mortgage payments for the sake of convenience.
Why You Need Home Insurance
So why do you need to have a home insurance policy? Can’t you get by without one?
1. Lending requirements
For starters, many banks and lending institutions won’t lend you money for a home unless you have a homeowner’s insurance policy. This is to protect the financial interests of the bank. If the bank lends you $100,000 for a home and your home is destroyed in a fire a year later, they could lose the money unless you have insurance. Accordingly, if you want to buy a home with a loan, rather than all in cash, you’ll almost certainly need to have a policy in place.
2. Equity protection
Remember, this is your investment too. Your money will be at stake, including your down payment and the amount of principal you pay on a monthly basis. If you suffer a theft, a fire, or another natural disaster, only a homeowner’s insurance policy will protect your investment. Otherwise, you could lose everything.
3. Legal protection
Being a homeowner imbues you with many responsibilities. In most states, you’ll be responsible for the reasonable safety of the people in your home, which means if they’re injured on your premises, they could sue you. Home insurance can protect you from these legal threats as well, saving you potentially thousands to millions of dollars.
4. Peace of mind
Finally, a good homeowner’s insurance policy will grant you peace of mind. You won’t have to worry about a storm that could rip your roof off. You don’t have to worry about a theft completely removing your possessions. You can rest easy knowing you’re protected.
While a home insurance policy isn’t legally required, it’s strongly recommended that you purchase one—and it’s probably required by your bank. Do your research and invest in the best home insurance policy you can afford for maximum protection.
Article Submitted By Community Writer
