Homeowners insurance also commonly known as home insurance, is a type of property insurance that covers the damages to an individual’s home, along with furnishings and other assets in the home. It helps to provide financial protection for losses to a residence and other personal belongings. Homeowners insurance also pays liability coverage against accidents that occur in residential premises.
Homeowners policy usually includes loss of interior damage, exterior damage, damage of personal assets, and injuries that arise on the insured residential property. We will discuss some more points about the Homeowners Insurance Policy.
How does homeowners insurance work?
Homeowners insurance is perhaps the most essential form of financial and personal property coverage, as most assets and wealth of an individual are tied up in a home. With homeowners insurance, one has coverage for the home itself, his/her personal belongings, and legal and medical expenses for injuries that occur while on the property. The homeowner has to pay a deductible when a claim is made on any of these incidents.
For instance, say an insured homeowner makes a claim to an insurer for interior water supply damage that has occurred in a home. The cost to reimburse the damage is expected by a claims adjuster to be $15,000. If the claim is legally accepted, the homeowner is notified of the amount of his or her deductible. According to the policy agreement, say the deductible amount is $5,000. The insurance company has to issue an only payment of the excess cost, in this case, $10,000. The higher the deductible amount on the insurance contract, the lower the monthly or annual premium value for the policy.
There is a standard liability limit for every homeowners insurance policy. This liability limit determines the maximum coverage amount an insurer is to be obligated to pay an insured party in case of an unfortunate incident. In certain homeowners insurance policies, the policyholder has an option to go for a higher liability limit. The higher value of the liability limit in the contract makes the premium value high and vice versa.
Most standard homeowners insurance policies include four essential types of coverage that are the following:
- Coverage for the structure of the home
Also referred to as policy’s dwelling coverage, it provides coverage against physical damage to the structure of the home up to the dwelling coverage limit. It pays for the damage to the home’s infrastructure, outer walls, inner walls, floors, pipes, water heaters, and basically anything that is built into the home.
The damage due to fire, hurricane, hail, lightning or other disasters listed in the policy is covered by a homeowners policy. It also covers detached structures on the property such as a garage, work shed, fence, or gazebo. The other structures coverage limit is typically 10% of a policy’s dwelling coverage limit.
- Coverage for the personal belongings
Homeowners insurance also includes coverage for personal belongings regardless of where they’re located. If someone breaks into a home and steals stuff, it is covered by the policy. Personal property coverage also covers guests’ personal property from damage or theft as long as their property is on the property of the insured party at the time of the loss.
Personal property by default covers expensive items like jewelry, furs, art, collectibles, and silverware, but there is a dollar limit in the policy if they are stolen. Generally, it covers 50 to 70 percent of the insurance a homeowner has on the structure of the house.
- Liability protection(Coverage for personal liability and medical payments)
In addition to home and personal belonging coverages, homeowners policy also covers personal liability protection in the case a homeowner is held liable for someone’s injury or damage to their property. If it is determined that the homeowner is liable and the claimed occurrence is an accident and not intentional; it pays for court or medical expenses up to the liability coverage limit.
Similar to personal property coverage, personal liability coverage covers occurrences that happen on the insured property. If a friend or guest slips and falls on the walkway to home and get injuries, it is covered by the policy. However, it does not pay the medical expenses for the owner’s family or pet.
- Coverages for additional living expenses
Also referred to as loss-of-use coverage, it covers the cost of additional living expenses if covered risk damages to the house and homeowners need to live somewhere else while it is repaired or rebuilt. It covers everything from hotel bills to restaurant meals. It also includes the rental value of the property if it was rented out as a source of income.
Keep in mind this coverage may be time-limited, and in some policies, it may last as long as it takes to repair or rebuild the home. Once the coverage limit is exceeded, the homeowner has to pay for additional living expenses out of pocket.
While a homeowners insurance policy covers many types of disaster-related damage, there are some exceptions. Acts of war and acts of God such as floods or earthquakes are usually excluded from standard homeowners insurance policies. To insure the property from floods or earthquakes, a homeowner requires separate insurance policies. However, on most basic level events like hurricanes and tornadoes are included in a homeowners insurance policy.