Understanding Homeowners Insurance
If a flooded bathroom can already set you back a couple thousand dollars in repair costs, then severe damage to any part of your home is going to be a huge financial hit. Thus, just as important as buying a new home is protecting it from unexpected events.
Even the best safety and security equipment can’t eliminate the risk of accidents and damage to your property. Fire, theft, natural disasters—they can happen in the blink of an eye and could change your life forever. It’s for these reasons that home and property insurance has become a critical part of homeownership.
FYI, home insurance is different from mortgage insurance. Mortgage insurance only protects your home loan, not your home, and that's a whole other blog post.
Why You Need Home Insurance
You probably already know that homeowners insurance is not a requirement for owning a home—unless you take out a mortgage loan to pay for it. Since most of our homebuyers purchase via a mortgage loan, your lender already had you purchase sufficient insurance coverage to safeguard your investment.
Even if you have enough money to pay for your new home upfront, though, home insurance is something you should seriously consider.
If you think home insurance will only pay for home repairs and renovations, you’re mistaken. Homeowners’ policies typically cover not just your home, but your belongings and all other structures in your property as well. Moreover, your home insurance may include liability coverage, which will help you pay for expenses and damages in case someone gets injured in your home or if you’ve caused harm to other people’s property.
Apart from the benefits mentioned above, having home insurance also preserves your home's equity and gives you peace of mind—two of the biggest reasons why it’s a non-negotiable for many homeowners.
What Does Homeowners Insurance Cover?
The primary purpose of home insurance is the protection of the physical integrity of your home. But as mentioned, this does not mean that the coverage is limited only to the dwelling structure.
Most standard homeowners insurance covers damages to structures in the property, loss or theft of personal belongings, medical and legal liabilities, and additional living expenses. These coverages are further defined and categorized as follows.
1. Property Damage Insurance
Coverage A – covers damages to the main structure of the home.
Coverage B – covers damages to structures within the property but detached from the main dwelling such as garages, sheds, fences, etc.
Coverage C – covers the replacement of lost or stolen covered personal belongings.
2. Additional Living Expenses Insurance
Coverage D – provides financial assistance for temporary dwelling and living expenses if the home becomes unlivable due to severe damage. May include hotel bills, food, clothing, and other related costs.
3. Personal Liability Insurance
Coverage E – covers legal expenses and damages in case of 3rd party property damage lawsuits.
4. Medical Payment Insurance
Coverage F – covers the medical expenses in case of 3rd party injuries in your home.
What Are the Limitations to Homeowners Insurance?
Basic home insurance will protect you and your home from many common types of perils such as fire, explosion, hail, theft, and vandalism. You can also upgrade your coverage to include damages caused by ice, snow, falling objects, and accidental losses from heating, plumbing, and electrical system malfunction.
A vital thing you need to understand about home insurance or any insurance, for that matter, is that it will only cover you up to the limit or maximum amount of your policy. Also, even the broadest homeowners’ policies will not protect you from certain perils—natural flooding, earthquakes, and intentional loss, among others. You may want to consider getting separate insurance to cover these risks.
That being said, homeowners insurance is still a very dependable safety net for safeguarding your financial interests in times of disaster and unexpected losses. You’ll sleep better at night, knowing that whatever happens to your home, you have the means to restore it to its original glory.
Ask your lender or Sales Professional for ideas on which insurance companies to call for quotes.
About the author: Rachael Harper is the Content Marketing Specialist for Bennett & Porter, a wealth management and insurance agency out of Scottsdale, Arizona.