What is Homeowners Insurance and Why You Need One?

Insurance companies today offer a more comprehensive range of insurance policies to protect clients. You can opt to have business insurance or car insurance, depending on what you need. 

If you finally have your own dream home, you’ll want insurance that protects your property. It is a must to get homeowners insurance if you wish to compensation for damages in your home.

What is Homeowners Insurance?

Homeowners insurance is a kind of property insurance. Generally, it covers losses and damages to your home and your assets.

It covers four kinds of damages on the insured property: 

  • Interior damage
  • Exterior damage
  • Damage of belongings or personal assets
  • An injury that occurs within the property

A homeowners insurance policy includes a liability limit. It determines the amount of coverage you’ll have.

Standard limits are set at $100,000. But, you can always choose to have a higher liability limit.

Homeowners insurance is not the same as a home warranty. The latter is a contract outlining repairs for damaged home systems. 

A warranty also expires after a specific time, usually 12 months. It covers damages caused by poor maintenance or the inevitable breakdown of assets.

These are situations in which a homeowners insurance policy doesn’t apply.

A homeowners insurance policy is also different from mortgage insurance. Banks require mortgage insurance if you’re buying a house. It will be a need if you’re making a down payment of less than 20% of the total cost of the property. 

Mortgage insurance is for lenders. It protects those who take on the extra risk of lending to homebuyers.

There are two types of home insurance: building/structure and home contents insurance. 

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The former requires you to have your own property. This is because it covers damage caused to the structures of your home. This includes outdoor structures, such as garages and sheds.

Meanwhile, people living in a rented space can buy home contents insurance. It covers the damage to your personal belongings.

There are several exclusions under homeowners insurance. But, these exclusions will vary depending on your insurance company.

Below are several of the most common exclusions under a home insurance policy:

  • Intentional damage
  • Damages due to nuclear activity or radiation
  • Military attack
  • Damages due to termite infestation
  • Act of terrorism 
  • Insurgence or civil war

Importance of Homeowners Insurance

Compensates for Loss Due to Natural Disasters

Natural disasters like cyclones, floods, and earthquakes, cause extensive property damage. Insurance compensates for damages to your home due to such causes.

Aside from natural disasters, insurance also covers payment for man-made damages. These include theft, vandalism, and fire.

Below are some specific insurance types you can include in your insurance policy.

Hazard Insurance

This type of insurance protects a property owner against damage caused by the following:

  • Fires
  • Severe storms
  • Hail or sleet
  • Other natural events

As long as coverage includes damages from such events, you will receive compensation.

You may have to pay for a year’s worth of premiums at the time of buying the policy. But, this practice can change depending on the exact details of your insurance policy.

It’s important to note that hazard insurance is different from catastrophe insurance. Although both deal with coverage for natural disasters, the two are different. 

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Hazard insurance refers to a part of a general homeowners insurance policy. It usually protects the structure of the home.

Meanwhile, catastrophe insurance is a separate policy that covers specific types of disasters. This can include man-made ones.

Flood Insurance

Flood insurance covers a dwelling for losses from water damage. Coverage includes costs to repair damages due to flooding.

The insurance covers flooding damages from heavy rain or prolonged rain. It also covers damages from the following:

  • Coastal storm surges
  • Melting snow
  • Blocked storm drainage systems
  • Dam failure

Windstorm Insurance

Windstorm insurance is a special form of property-casualty insurance. It protects you from property damage caused by gales, hail, winds, and other hazards. 

This is a subset of storm insurance. Generally, it comes in the form of a rider on a standard casualty insurance policy. Insurance companies offer this through an extended coverage endorsement. 

Covers Temporary Living Fees

If your house incurs severe damages, you may need to look for temporary living quarters. Insurance covers the expenses for this while your home is under construction.

Protects Against Liability

Insurance also protects you against any liability from accidents on your property. 

If a third party got injured within the confines of your property, you might need to pay compensation. Insurance can cover the expenses for you.

Pays for Costs to Replace Lost/Damaged Assets

Aside from covering your home structure, insurance also covers assets. These include electronic appliances, clothes, ornaments, and furniture.

It’s best to start looking for homeowners insurance as soon as you buy a home. This allows you to look around for quotes. It also gives you time to get a policy in place before closing the sale on the property. 

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Generally, you’ll have a month or more between the time you sign a contract and the day you move into your new home. You can use this time to find the right insurance company for your needs.

This way, if a fire or a windstorm damages your property, insurance can help pay for the repairs. 

Without insurance, you may need to pay out of pocket to help rebuild your home. Insurance ensures you’ll be able to cover the costs to repair damages and recover lost assets.

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