What is homeowners insurance?
Homeowners insurance, also called home insurance, provides financial protection in the event that your house and/or its contents are damaged. It also provides protection in case you or other members of your family are held liable for injuries to other people or damage to their possessions while they are on your property.
Homeowners insurance is important. Homeowners typically purchase this type of insurance for two major reasons:
- To protect assets: Homeowners insurance not only covers the structure and the items inside, but also your personal legal liability or responsibility for injuries to other people or their possessions while they are on your property. For example, homeowners insurance would come in handy if your dog were to bite a guest or a visitor were to trip and fall on your walkway and sue you.
- To satisfy mortgage lenders: If you have a mortgage on your house, your lender will typically require you to buy homeowners insurance to protect its investment. If you let your policy expire, your mortgage lender will buy the insurance for you. Compared with an insurance policy you would buy yourself, the premium likely will be much higher and the coverage will be limited to damage to the structure of your house. The lender typically requires you to reimburse this higher premium until you buy homeowners insurance again.
Homeowners insurance example
A homeowners policy provides two types of coverage: standard coverage and optional coverage.
- Dwelling protection covers your home and the surrounding structures, such as a garage, toolshed, fence and carport.
- Liability coverage pays for damages you have caused on another person’s property.
- Personal property coverage pays for the repair or replacement of items that are damaged or stolen in a covered loss (i.e., everything from furniture to dishes to the curtains).
- Additional living expenses coverage, also referred to as “loss of use,” helps pay for temporary relocation and basic living expenditures such as meals if the covered damage forces you to relocate while it is being repaired.
- Medical payments coverage pays for injury treatment for visitors who get hurt while they are in your property. It also covers individuals you or other members of the family accidentally injure while away from home.
- Water backup coverage pays for damages caused by plumbing issues such as a burst pipe. Keep in mind that this coverage doesn’t include flash floods.
Most insurance companies offer extra coverage for the structure of your home. In case your original coverage limitations are not enough or there is a sudden increase in the cost of construction, having enhanced home insurance coverage ensures you do not dip into your savings to reconstruct your home.