Homeowners insurance is a type of insurance that protects a person’s house, belongings, and other valuable things in the house from losses and damages. It also provides coverage in case of accidents on the property and protects the homeowner from liability.
Homeowners Insurance Policies: Why You Need It To Protect Your Home
Homeowners insurance (also known as home insurance) policies cover four types of incidents that happen on a property: damage inside the home, damage outside the home, loss of personal belongings, and injuries that happen on the property.
When a homeowner makes a claim for any of these incidents, they will need to pay a certain amount of money upfront, which is called a deductible. This is the amount the homeowner pays out of their own pocket before the insurance company pays the rest of the claim.
For example, let’s say there is water damage inside a home and the cost to fix it is $8,000. If the homeowner’s deductible is $2,000, they will need to pay that amount, and the insurance company will pay the remaining $6,000.
Homeowners can choose a higher deductible to lower their monthly or annual insurance premium.
Every homeowners insurance policy also has a liability limit. This is the maximum amount the insurance company will pay if something happens on the property that results in damage or injury.
The standard liability limit is usually $100,000, but homeowners can choose a higher limit. If a claim is made, the liability limit determines how much of the coverage amount will go towards repairing or replacing damaged property, personal belongings, and costs for temporary living arrangements while repairs are made.
Standard homeowners insurance policies usually do not cover damage caused by war or natural disasters like earthquakes or floods. People living in areas at risk of these events might need to purchase additional coverage to protect their homes. But, basic homeowners insurance policies do generally cover damage caused by hurricanes and tornadoes.
Insurance For Homeowners And Mortgages
When someone wants to get a loan to buy a house, they usually have to prove that their property is insured. This means that if something bad happens to the house, like a fire or a flood, the insurance will pay for it.
The homeowner can either get their own insurance or the bank can get it for them. If the homeowner doesn’t have insurance, the bank will get it and charge the homeowner extra.
The cost of the insurance is added to the homeowner’s monthly mortgage payment. The bank keeps this money in a special account called an escrow account. When the insurance bill is due, the bank takes the money from the escrow account to pay for it.
Is Homeowners Insurance And Home Warranty The Same?
Homeowners insurance and a home warranty may sound alike, but they are not the same thing. A home warranty is an agreement that covers the cost of repairing or replacing home appliances and systems such as the oven, water heater, washing machine, dryer, and pool.
The warranty lasts for a specific period, usually 12 months, and is optional for homeowners who want to buy it. The warranty covers problems that arise from regular use or lack of maintenance, which homeowners insurance does not cover.
Is Homeowners Insurance And Mortgage Insurance The Same?
Homeowners insurance is not the same as mortgage insurance. Mortgage insurance is usually required by the bank or mortgage company for homebuyers who make a down payment of less than 20% of the property’s cost.
The Federal Home Administration also requires it for those who take out an FHA loan. It is an extra fee that can be added to the regular mortgage payments or paid as a lump sum at the start of the mortgage.
Mortgage insurance is for protecting the lender in case the homebuyer can’t make their mortgage payments. It covers the additional risk the lender takes on by giving a mortgage to someone who doesn’t meet the usual mortgage requirements.
If the homebuyer can’t pay their mortgage, the mortgage insurance compensates the lender. In summary, homeowners insurance protects the homeowner, while mortgage insurance protects the mortgage lender.
