Homeowners insurance is the type of property insurance that aims to cover your private homes. In the United States, most people purchase houses in the form of mortgage loan. Therefore, the banks (mortgage lender) often require the homeowners to purchase homeowners insurance to protect them if the homes are destroyed.
Homeowners insurance provides you protection against variety of losses. The followings are some features of a typical Homeowners insurance.
Repairing Coverage – A basic policy will cover the repair cost to fix or rebuild your property in the case of disasters, which includes damages caused by fire, flooding and earthquake.
Personal Coverage – Homeowners insurance also covers most of your personal items. It basically includes all things that could be stolen.
Personal Injury – This is an important coverage that is often ignored. For example, if someone slips on your porch and get injured, your insurance policy can protect you against any claims of the injury.
The advantages of having homeowners insurance
A peace of mind – A big advantage of having homeowners insurance is to give you one less thing to worry about in your life. For most people, big portions of their wealth are either the personal items in their houses or the houses itself. By having the insurance, you do not need to worry about all your assets are gone one day by a sudden disaster.
Financial Protection – It is easy to think that bad things only happen to other people but not us. However, the truth is that throughout your life you are going to run into one or two misfortunes. Here are some numbers that worth looking at:
The average water claim over the last few years involving frozen pipes is around $5500, and the average theft claim is $2500.
The average fire or lightning claim on a house is around $25,000.
The average amount of all claims is about $7,500.
More importantly, homeowners insurance can cover the chance of suffering total destruction of your house, which is something that many of us can’t afford. Although the chance of total destruction is rare, it is common to experience some sort of losses. Therefore, it is worthwhile to have homeowners insurance to give you financial protection.
A Glossary of Terms for Homeowners Insurance
Insurance policy – the contract that states what will and will not be covered when and if anything happens to or in your home. Earthquakes, floods, and “acts of God” are typically not covered. You would have to purchase a “rider” for these.
Premium – the payment the insured makes to the insurance company.
Deductible – the amount you need to pay before the insurance kicks in. The higher the deductible, the lower the premium.
Payouts – there are two types of payouts: actual cash value and replacement cost coverage.
Actual cash value pays an amount equal to the current cost to replace your items minus the depreciated value.
Replacement cost coverage pays you the amount it would cost to replace your lost or damaged property. You only get the money if you replace the items. There is also usually a limit on how much money you receive, and the premiums tend to be higher.
Rider – a provision in an insurance policy that alters the policy’s term, coverage, or conditions.
Ordinance-and-law coverage – this is a “rider” that covers the cost of bringing your home into compliance with current building codes. You will need this coverage if your home is more than a few years old.
Inflation guard – a coverage that annually increases your premium at the rate of local building-cost inflation.
Perpetual insurance – home insurance without a fixed term.
