Your home is your castle, so the saying goes.
And you're going to want to
protect it. Homeowners insurance can give you just the protection you need. It
provides coverage if your home is damaged or destroyed. It also covers your
family's possessions and provides you with compensation for liability claims,
medical expenses, and other expenditures that result from property damage and
bodily injury suffered by others.
Why you need it
You may need homeowners insurance because your mortgage lender requires it. But
even if you own your home outright, you still need homeowners insurance to
protect that which you can't afford to lose. It's really that simple. After all,
you've spent years building up a solid financial foundation for you and your
family. Without homeowners insurance, all of that hard work can go down the
drain in a matter of minutes when, for example, a tornado devastates your house,
a burglar robs and vandalizes your home, your dog bites and severely injures
your neighbor, or your mail carrier slips on your front steps and breaks his
leg.
Property coverage
The main purpose of homeowners insurance is to protect your home and other
structures, like a shed or detached garage. Your policy will cover not only the
cost of the damage (the exact amount depends on your policy) but also your
living expenses (up to a limit) while you wait for your home to be repaired.
In addition to protecting your home, the typical homeowners policy covers your
personal property, both on and off premises. Your personal property consists of
the contents inside your home (e.g., furniture, appliances, clothing, jewelry)
as well as outdoor items (e.g., sporting equipment, lawn tools). It's important
to note that homeowners policies set specific dollar limits for certain types of
personal property (e.g., jewelry, coins).
Although policies vary, a typical homeowners policy provides coverage for damage
to property caused by:
·
Windstorm and hail
·
Explosions
·
Theft or vandalism
·
Vehicles
·
Smoke
·
Falling objects
·
Weight of ice, snow, and sleet
·
Freezing of plumbing, heating, or air conditioning system
·
Riots
But be aware that homeowners insurance does not cover a wide variety of perils
(e.g., flood, earthquake damage). You may need to purchase an endorsement or
separate insurance policy to ensure adequate coverage in these instances.
When reimbursing you for a loss, insurance companies use one of two methods to
determine the value of property:
·
Replacement cost: This pays you the cost of replacing damaged property, with no
deduction for depreciation, but with a maximum dollar amount
·
Actual cash value: This pays you an amount equal to the replacement value of
damaged property minus a depreciation allowance
Keep in mind that before an insurance company reimburses you for a loss, you'll
need to satisfy a deductible.
Liability coverage
In addition to insuring your property, the typical homeowners policy includes
liability protection that provides coverage for damages caused by your
negligence. Medical payments to third parties and your legal costs for any
lawsuits brought against you are also included. Most homeowners policies provide
a standard amount of liability coverage (usually $100,000) per accident.
Purchasing homeowners insurance
Homeowners insurance policies are written individually, typically at the time
you purchase a home or when you take out a mortgage on a home. For the most
part, you'll want to purchase enough property coverage to cover the replacement
cost of your home and its contents. The amount of liability coverage you'll need
to purchase will depend on the assets you would like to protect (e.g., home,
car, investments).
The cost of homeowners insurance depends on the amount of your coverage, any
endorsements you add to the policy, and policy deductibles. But since premiums
for similar policies vary from company to company, it pays to shop around and
compare rates.