Buying a home is often the largest purchase in a person’s life, and both you and your lender will want to make sure that your home and the contents in the home are properly protected against almost any kind of loss. To make sure that you are fully protected (but not overprotected), it is important to work with a knowledgeable expert who can get you the right coverage for your needs, but you also want to make sure that you have a baseline understanding of the coverages and limits you need. This article will help you better understand the ins and outs of homeowner’s insurance.
What is homeowners insurance and why do you need it?
Homeowners insurance is a type of insurance that will provide you with multiple types of coverage for your home, yourself, and other personal property in the case of a covered loss. Homeowners insurance will also protect you, as the homeowner, against any loss if someone were to hurt themselves in your home, whether that might be, for example, because of a slip and fall or because your pet did something to cause an injury to a visitor.
The number one reason why most people need homeowners insurance is because your lender will require it! The loan used to finance your home purchase is secured by your home, and if the home suffers a loss, so does the lender. For that reason, the lender wants to make sure the home is protected with sufficient coverage. If at any point during the life of the loan, you fail to renew coverage, your lender will be forced to place a policy on your behalf and charge you for it, which you will not want because it’s likely going to be much more expensive than the policy you had before!
But even you currently do not have a loan secured by your home, having homeowners insurance is still an important risk mitigation tool. Your home is one of, if not the most, expensive purchase in your life and it is filled with furniture, appliances, family heirlooms, clothing, jewelry that is also very expensive (if not priceless). It’s important to make sure that these items are all protected, so if something were to happen, you can easily replace those items without the risk of financial ruin.
It's also important to make sure that the homeowner is covered against the risk of personal liability. A visitor at your residence could get injured and sue you to recover the costs of their injuries. Depending on the injuries sustained, this could be a significant chunk of money. Having homeowner’s insurance means you’ll be covered under this scenario!
So, let’s talk coverage: What types of coverages do you need?
Your home and personal property will be covered from hazard damage under the homeowners insurance policy. Hazard coverage protects the insured in case your home is damaged by fire, wind, falling objects and other events included on the list of “covered perils.” Coverage for water damage, flooding, hurricanes, earthquakes, and tornados fall outside of typical coverage and should be discussed with your insurance agent if the home is in an area prone to any of these natural disasters. A typical homeowners insurance policy can provide insurance protection for the following:
- The home, which is the physical dwelling structure and other structures attached to it.
- Other structures, which would be any structure on the property not attached for the house like a detached garage, a pool house or tool shed.
- Personal property, such as furniture, appliances or clothing.
- Loss of use or additional living expense, for instance, if a fire damages your kitchen and you are no longer able to cook at home and need to order in every night. Insurance can help pay for those higher costs due to the loss of use of the kitchen.
- Personal liability: Provides protection against legal liability for bodily injury or property damage if a third party is accidentally injured or their property is damaged. Note: make sure your insurance agent has you covered for any damage caused by pets.
- Medical payments (aka guest-medical payments), which covers the homeowner if the third party is injured on the property and requires medical treatment.
How much will homeowners insurance cost?
