What is Homeowners Insurance and How Does it Work?

If you own a home, the idea of having to replace all of your possessions and the building itself probably seems daunting.

If you do not have the finances to purchase all these replacements, then homeowners insurance is a necessary expense.

This homeowners insurance guide will explain everything you need to know and how to get quotes on the best rates.

What is Homeowner’s Insurance?

Homeowner’s insurance covers your home in the event that something goes seriously wrong. If your home is seriously damaged thanks to a natural disaster, fire, a burst boiler, and so on, the insurer will pay for the repairs or rebuild.

It’s important to note here that the insurer won’t pay for damages as a result of wear and tear or poor maintenance. So, if your roof blows off in a storm, you should be covered. If shingles lift because they’re old and should have been replaced, the insurer won’t pay the full amount.

These policies also typically have liability coverage built into them. Say, for example, that you’re having your roof fixed and a shingle falls on your neighbor’s head. Liability insurance should kick in to pay the medical bills, loss of income, and so on.

Some policies extend coverage to include the contents of your home as well. So, if the home is broken into, or destroyed by fire, you’ll be paid out for the contents as well.

How Does Homeowner’s Insurance Work?

Homeowners policies are a combination of several different kinds of coverage. These coverages work together to make a comprehensive policy.

Dwelling Coverage

Dwelling coverage protects your home itself—the structure. Built-in appliances and fixtures such as wall-to-wall carpeting will fall under this category. It will extend to any structure that is connected to your home. So, the cellar and garage are also covered under this option.

If your water heater bursts and the resulting flood of water destroys your carpeting, this is the kind of coverage that you need. Keep in mind, though, that the company will impose certain limitations to coverage. If there is damage to the roof, for example, the company will consider the age of the roof before paying out.

As the cost to rebuild a home varies over the years, it’s essential to have your home re-evaluated on an annual basis and increase your coverage if necessary. However, in some cases, the policy coverage level is connected directly to the amount of your mortgage.

This is a reasonably cheap option but can bite you in the butt. As the value of your mortgage decreases, the policy payout decreases as well.

This could leave you in a sticky situation. Sure, the insurer will pay your mortgage in full, but you’d have to finance the rebuild yourself. This type of policy may not the best idea.

Other Structures Coverage

Coverage for surrounding structures applies to structures that are on your property, but not actually connected to the main house. If you have a shed in the garden, a detached shop, garage, or a pool house, for example, this coverage would be necessary. The same kinds of rules apply here as they with the previous type of coverage.

Personal Property Coverage

Personal property coverage comes into play if the contents of your home are destroyed, stolen, or damaged. It’s important to be able to provide a full, itemized inventory of your home’s contents for claims on policies such as these. It’s a good idea to keep a detailed inventory with prices, receipts, and pictures.

Liability Coverage

Liability coverage extends to guests or workers in your home. If someone is injured on your property as a result of negligence on your part, this comes into play.

The coverage will be for the medical bills, possibly loss of income, and, if they sue you for pain and suffering, that too. This cover also extends to legal representation if there is a court case.

Loss of Use Coverage

Something that seldom occurs to people is what they would do if they could not live in their home. If your house burns down, for example, you’ll need to live somewhere until it’s rebuilt.

Loss of use coverage can help finance an alternative solution so that you don’t have to crash on someone’s couch.

The policy will dictate how much coverage is provided in this instance. For instance, it may cover things like a rental but only for a limited period.

What does Homeowner Insurance Cover?

It’s important to answer this question before you sign on the dotted line. Are all the buildings on your property covered? What instances will you be covered for? What might negate cover?

Typical homeowner’s policies will normally cover you for damage caused by:

• Fire
• Lightning
• Hail
• Wind
• Vandalism
• Theft

You would think that all acts of God would be covered, but this is not always true. You may need to take out additional flood or earthquake insurance, for example.

It’s also important to check what “vandalism” means in this instance. Damage caused by a common vandal may well be paid for by the insurer. Damage as a result of rioting, on the other, is less likely to be part of a standard policy.

It’s essential that you know what level of coverage you have. You’ll also need to understand what might negate the coverage. Insurers won’t pay out if they can find a reason not to. You’ll need to make sure that they have no excuses for declining the claim.

A common cause of denied claims is that the details as reported in the application don’t match up to reality. Having an alarm system can secure you a better rate on your policy, for example, but if you go out without arming the alarm, and someone robs the house, that could be grounds for declining the claim.

Why You Need Homeowner’s Insurance

The state doesn’t require homeowner’s insurance. You’re thus not under a legal requirement from the government, as is the case with car insurance. That said, if the home is financed, your lender is probably going to insist you take out full comprehensive coverage.

If you’ve financed your home, and you let the coverage lapse, you’ll still have to continue paying the mortgage if the home is destroyed. It just isn’t worth taking risks here.

More importantly, though, you need to remember that this is your most valuable asset. It’s one of the most expensive purchases that you’ll ever make.

Now, while general maintenance tasks are easy enough to pay for, major repairs or rebuilds are totally different. Replacing your roof, for example, will cost thousands of dollars.

It’s expensive enough if you’ve had time to save up for it, but if a tornado blows through town tomorrow, what would you do?

Rebuilding your home from scratch and having to replace all the contents is extremely expensive. With this insurance, you’ll have a helping hand. It’s not a nice-to-have, it’s essential.

Getting Homeowners Insurance Quotes

Getting homeowners insurance quotes is a little different than other forms of insurance. The biggest difference is that most people bundle their home policy with auto insurance or other property insurance.

By doing this you can get extra discounts. Other than this, you will want to make sure that you are getting quotes from multiple companies. Specifically, top rated companies.

Top Companies for Homeowners Insurance

Liberty Mutual – A top name across all lines of insurance, Liberty Mutual homeowners policies are a good choice.

Geico – The company the revolutionized 15 minutes, Geico is one of the most well known insurance companies in the country.

All State – Great for all property types, All State homeowners insurance is a popular way to go.

Homeowners Insurance Bottom Line

If you own or are purchasing a home then a homeowners policy is a must.

Whether you bundle it with another type of insurance or not, making sure that your home is protected is a top priority.