Homeowners insurance, also called hazard insurance, provides compensation for damages to your home and personal property in the event of a fire, theft, vandalism and many weather-related occurrences. This provides protection for you as well as your mortgage lender. They, too, have a stake in your home because they loaned you money for the purchase. Lenders require homeowners insurance for as long as you owe on a mortgage.
There are several different types of homeowners insurance policies, and not all lenders offer the same coverage options. Here are a few you may encounter:
- Dwelling: This coverage pays for repairs to your home caused by the perils outlined in your policy; usually fire, hurricane, hail, lightning and some other disasters (it doesn’t cover normal wear and tear). Most policies also cover detached structures on your property, such as garages and sheds, up to a certain limit. If you have substantial free-standing structures, you may want to pursue additional coverage.
- Personal property: This coverage pays out if your personal belongings, such as clothes and furniture, are stolen or damaged by the disasters outlined in your policy. When rolled into your overall homeowners policy, coverage is often capped at 50-70% of your home’s coverage.
- Loss of use: If you have to stay elsewhere while workers repair your home, this will cover some of your extra living expenses.
- Liability: Opting for liability coverage helps cover the cost of bodily injury or property damage done by you or your family (including pets). It can also help cover any legal costs associated with the damage. For example, if your child or pet damages the neighbor’s fence, your homeowners insurance will pay to repair it.
- Medical payments: If someone is hurt on your property, the cost of their care may be covered in part by your homeowners insurance policy. That includes injuries caused by pets.
- Perils: Your lender may require additional coverage, such as earthquake or flood insurance, depending on where you live.
Source: Insurance Information Institute
Coverage refers to the amount of money an insurance company will reimburse you for damages. Your insurance agent can also help you determine the appropriate coverage limits for your home.
Keep in mind that you’re responsible for paying your insurance deductible, which is the amount of money you must pay for property damage or loss before your insurance pays for the rest. You’ll pay more out of pocket when you have a policy with a high deductible and low coverage limits. If paying a large deductible after a claim would be a hardship, you might want to consider paying extra for a policy where your insurance company pays more for property damage or loss (higher coverage limits) and you pay less (lower deductible).
According to the National Association of Insurance Commissioners, here are typical insurance coverages:
|Coverage Type||Coverage Limit|
|Dwelling||Discuss with insurance agent; NAIC recommends full replacement cost of home|
|Other structures||10% of full replacement cost of home|
|Personal property||50% of full replacement cost of home|
|Loss of use
||20% of full replacement cost of home|
|Personal liability||Discuss with insurance agent|
|Medical payments||Discuss with insurance agent|
Getting a Quote
Do some research and get quotes from different insurance companies to find the best coverage rates for your needs. Ask family and friends for recommendations and browse online reviews. Another option is to go through an insurer you’re already using, such as your auto insurer. Insurance companies often give discounts when you carry more than one policy with them.
Before you sign on the dotted line, check with your state’s insurance regulatory agency to make sure the insurer is licensed and in good standing.
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