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What Can Homeowners Insurance Protect You From?

Regardless of whether you are purchasing your first home or you have been a homeowner for years, it is important that you understand what home insurance is and how it can protect you. If you are like most homeowners, your mortgage lender requires you to maintain an active home insurance policy at all times. In fact, if you cancel your coverage, your lender may purchase a new policy on your behalf. Even if you do not have a mortgage and are not subject to a lender’s requirements, it makes sense to purchase full coverage for your home. After all, your home is a major asset, and you could suffer extreme financial loss if this asset is not insured.

When some homeowners or home buyers think about property insurance, they think about coverage related to a major fire or a destructive storm. These are only some of the many benefits that a typical home insurance policy may provide. It is important that you understand the benefits of your coverage so that you can access those benefits through a claim if the need arises. Taking a closer look at home insurance benefits will help you to be a more informed homeowner going forward.

How Does It Work?: Home Insurance

A loss can occur at any time, so you should always maintain coverage on your home. When you initially set up coverage, your insurance agent will ask you about preferred coverage amounts as well as the deductible amount that you desire. While you can set these at a desired amount, they must be within reason. Your insurance agent can provide you with guidance in this area. Before your coverage is active, you typically must prepay the premium for at least a few months.

You will continue to pay the premium regularly in order to keep the coverage active. In most cases, home insurance coverage automatically renews, but the insurance provider may adjust your premium from time to time. When a loss event occurs, you can file a claim directly with your insurance provider. Keep in mind that you will be responsible for your deductible each time a claim is filed. While the deductible amount varies, it commonly ranges between one to two percent of the face value of the policy. This can be a sizable amount of money, so homeowners should ensure that the cost of home repairs or other expenses is substantially greater than the deductible amount before filing a claim.

Before your insurance company will pay out on a claim, an adjuster will usually inspect your home. Through careful review of the damage, he or she will assign a dollar amount to your claim. In many instances, the insurance company will recommend that you use a specific repair company to repair the damage.

The Checklist: What Most Home Insurance Policies Cover

One of the most important things to understand about home insurance is that there are many variations between policies. When you are setting up coverage, read the fine print carefully. Consider comparing multiple policies. This can be tedious, but remember that this coverage protects your financial interest in your home. By comparing policies, you will find that most home insurance policies cover:

  • Liability Losses – If you face any liability losses related to your property, your insurance company may pay for legal expenses, judgments and more. One example is if a guest is seriously injured on your property after a slip and fall accident and sues you for damages.
  • Personal Property Losses – This coverage pays for the replacement of any personal items inside the home or on the property. This includes appliances, furniture, clothing, electronics and more. Loss may be related to theft, fire and other events.
  • Property Losses – Property insurance pays for losses to site-built features on your property, such as the actual home, a deck, a fence and more. Covered loss events are usually specifically listed in the policy. However, some policies are written so that all events are covered except for those that are specifically listed.

Keep in mind that some types of events are not usually covered by a typical or standard home insurance policy. These include damage related to flooding, mold growth, earthquakes and more. If you have a need for these or other optional coverages, you will need to ask for these to be added to your policy.

Questions and Answers:

Q: Why is land not covered by my home insurance policy?

A: While landscaping may be damaged in a severe situation, the actual land will never be destroyed. Because of this, home insurance policies cover the full value or the replacement value of the structure rather than the land and the structure.

Q: How do I know if I need flood insurance?

A: Your insurance agent or mortgage lender may tell you if your home lies in a flood plain. Some lenders require flood insurance if your home is in a flood plain. Otherwise, you can add flood insurance to your policy at your discretion.

Q: How much insurance should I buy?

A: Some policies offer full replacement value coverage, which is the price that you may pay to rebuild the property in the event of a total loss. Others are cash value policies. Your insurance agent can help you to determine a reasonable amount of coverage to purchase.

Q: What is a good deductible amount?

A: Your deductible amount should be affordable for you to pay in a worst-case situation. A higher deductible may give you a lower premium, but it may also make it less cost-effective to file a claim when you experience loss.