Homeowners Insurance: The Basics

For anyone planning on buying a home, homeowners insurance is an essential consideration. It might seem like a daunting topic, but don’t worry—if you’re looking for a primer on the basics, you came to the right place. Let’s take a quick look at what homeowners insurance is and what it covers.

Homeowners insurance policies vary in their specifics, but generally speaking, they cover events that damage or destroy your home and the belongings you keep inside it. They often include liability coverage as well, which protects you if people injure themselves while in or around your home.

You’re not legally mandated to have homeowners insurance, but it’s a very good idea to have it if you’ve bought or acquired a home outright. If you have a mortgage, the lender will require you to have it to protect their investment.

How it Works

You first purchase a policy, which will spell out exactly what is covered under what conditions, the amount you’re covered for, the cost of your premiums, etc. You can tailor your policy to your specific needs. The insurance company might want your home inspected before this.

As with any type of insurance, you are then obligated to pay premiums—usually on a monthly basis. If and when any damage that is covered under your policy occurs, you submit a claim to the insurance company. Once you’ve paid your deductible—the amount you owe out-of-pocket—the company will kick in the rest. You generally pay lower deductibles if you pay higher premiums, and vice versa.

What Is Covered

What’s specifically covered depends on the policy you’ve chosen, but four basic types of coverage are typical of virtually all policies. They are:

  • Liability. This protects you when a third party has an accident and sustains an injury on your property or in your house. (Examples might include slipping and falling, injuries such as bites caused by a pet, or damage to a neighbor’s home caused by something on your property, like a falling tree branch.) Liability coverage takes care of the person’s medical and legal fees.
  • Structural. This is the main part of homeowners insurance. It covers you for events that lead to structural damage to your home or even the destruction of your home. It can include other structures on your property, such as sheds, guest houses, and gazebos.
  • Personal Property Coverage. This covers the belongings you keep in your residence such as furniture, appliances, electronics, and clothing. It helps you pay to replace or repair them if they’re damaged or destroyed.
  • Emergency Living Expenses. If your home is extensively damaged to the point that you can’t stay there for a time, this coverage helps you pay to stay elsewhere temporarily—typically a hotel—and can cover other expenses such as meals.

What Isn’t Covered

Most homeowners policies don’t cover flooding, sewage backup, or burst pipes. Natural disasters (called “acts of God” in insurance parlance) such as earthquakes, hurricanes, and tornados are also typically not covered. But it’s possible to buy additional coverage for these specific events.

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