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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Homeowners' Insurance
Homeowners’ insurance may not be an exciting subject to talk or read about, but it is important to understand the about it as much as possible for new homebuyers.
Practically all lenders require insurance coverage in order to protect their investment.
You do not necessarily need to own a home in order to have homeowners’ insurance as several landlords need their tenants to have coverage.
However, it is smart to have protection like homeowners’ insurance whether it is required or not. Let us take you through the basics of this type of insurance step-by-step.
What does a Homeowners' Insurance provide?
Through a standard homeowners’ insurance policy the insurer covers the costs related to:
- Loss of or damage to personal property– Most of the contents of your home including the furniture, clothing, and appliances are compensated if they get destroyed or damaged in a disaster that is insured. You can also file a claim for any lost jewelry, no matter where you lost it, through off-premises coverage. Often there is a limit to the amount your insurer will compensate you. Even if you damaged your mink coat or your Rolex at home, there is a limit on the amount of compensation, unless you have purchased a separate ‘floater’ policy insuring that item for the full appraised value of it.
- Damage to the interior or the exterior of the house– In case there is damage to your house of any kind due to a covered disaster like hurricanes, fire, vandalism, lightning, etc. the insurer will compensate you to get your house repaired or completely rebuilt. Damage due to earthquakes, floods, or poor home maintenance is usually not covered and may require separate riders.
- Personal liability for damage or injuries caused by you or your family– This insurance clause also includes your pets. So, if someday your pet dog happens to bite your neighbor, your insurer will pay his/her medical bills, irrespective of the place where the incident took place. You can also file a claim to reimburse your neighbor if your child somehow breaks his/her vase. You will also be compensated if your neighbor sues for pain and suffering or lost wages. Although policies start from $100,000 coverage, experts recommend you get a coverage of at least $300,000.
- House or hotel rental while your home is being repaired or rebuilt– You probably might never need this insurance, however, if you someday find yourself in this situation, it will quite possibly be the best coverage that you will ever purchase. If your house is so damaged that it is inhabitable, or is completely destroyed, you will have to look for another place to stay while it is being rebuilt or repaired. This part of the insurance policy will compensate you for the cost of hotel, rent, restaurant meals, and other related costs. However, it is important to know that such policies have strict daily and total spending limits which you can increase by paying more in coverage.
Types of Coverage
Every insurance is different in some or another way. The homeowners’ insurance with the least cost will also provide the least amount of coverage, while costlier insurance will provide more coverage.
There are basically 3 levels of coverage:
- Actual cash value– The actual cash value covers your house and the belongings after removing the depreciation.
- Replacement cost– This value is the actual cash value without the depreciation being deducted, which allows you to rebuild or repair your house up to its original value.
- Guaranteed replacement cost– This inflation buffer pays for the cost of repair or building your home even if it is higher than the limit of your policy. Many insurers also offer an extended replacement that offers more coverage than you have purchased with an upper limit that is generally 20-25% higher than the policy limit.
The cost of Homeowners insurance
According to the National Association of Insurance Commissioners, as of 2010, which is the latest year for which data is available, the average annual premium cost for U.S. homeowners insurance in 2008 was $791.
However, these premiums vary extensively and depend on various factors like how much coverage have you bought, and the area, locality, or region you live in, etc.
Companies usually also consider the home size and how far it is from the nearest fire hydrant, the condition of your plumbing, etc.
Whatever is the initial price you are quoted, it is always better to shop around for more options and a better idea and remember that there are many other ways to bring the costs down.
Conclusion
Homeowner’s insurance, like any other insurance policy, is not appreciated enough until they are needed after which they instantly turn into a blessing.
Getting comprehensive homeowners insurance can truly make your home a place of security and comfort.
It’s great to learn how a homeowner’s insurance helps you pay for any house-related damage that you might encounter in the future. My friend expressed his interest in purchasing a house where he can try and settle down for good. I think he should also consider the costs of insurance as a part of it.