What is Homeowners Insurance and Do You Need It?
Whether you already own a home or plan on buying one in the near future, you might be required to obtain homeowners insurance, but what is it and why do you need it? Abig expense that comes with homeownership is homeowners insurance. Not paying for homeowners insurance might be one way to save money but it may not be worth it.
Let’s take a look and explain, what is homeowners insurance, how it can benefit you, and if you really need it.
What is Homeowners Insurance?
First and foremost, let’s answer the question, what is homeowners insurance? Homeowners insurance protects you if there is damage done to your home and possessions. It will cover you against a loss or an accident that happens on your property. There are four types of loss that can be claimed via homeowners insurance. These are damage inside the home, outside the home, damage to or loss of your possessions, and injuries that happen while on your property.
When a claim is made, there is a deductible that the policyholder will need to pay. The amount that is expected to be paid will be set out in the policy documents. If you have homeowners insurance with higher deductibles, premiums are likely to be lower and vice versa.
If you have a mortgage and escrow homeowners insurance, your yearly insurance premium will be divided by 12 and added to your monthly mortgage payments. These payments will be paid set aside into an escrow account ready to pay the insurance premium when it is due. As this is paid in advance, the exact premium could change, leading to not enough money in the escrow account. This might mean an unexpected bill to cover the difference and ensure the insurance policy is renewed.
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How Does Homeowners Insurance Work?
Now that we answered the question, what is homeowners insurance, let’s take a look at how it actually works. If your home was to burn down, and you didn’t have insurance, that could leave you homeless. Plus, you will have lost the money you put into your property along with all of your belongings and you’d have to start from scratch with nothing. Many people can end up in doubt if something tragic like this happens.
However, if you have insurance, they will pay to rebuild your home and give you the money to buy furnishings and other possessions.
Homeowners insurance normally includes liability protection against injuries that could happen on your property as well. Whether you injure someone or your dog takes a bite out of a visitor to your home, the homeowners insurance may cover this liability. If the person has medical expenses, the insurance will pay through no-fault medical coverage. The person can submit these medical bills to the insurance company without filing a liability claim.
Liability coverage to protect you against lawsuits when you or members of your family cause damage or injury is also included. This is generally limited to $100,000 of coverage and pays for your court defense along with any awards mandated by the judge.
When you have significant assets, $100,000 of liability coverage might not be enough. If you feel you need more coverage, an umbrella or excess liability policy offers higher limits and wider coverage.
What are the Benefits of Having Homeowners Insurance?
There are countless benefits of having homeowners insurance. As mentioned above, if something happens to your home and you aren’t able to live in it, the insurance may pay your living expenses. In addition to covering alternative accommodation, they may also cover restaurant meals and other costs of being displaced.
If you are a victim of a crime and your possessions are stolen, the insurance will pay out. If you have expensive things in your home, like jewelry, collectibles, or art, these will be covered as well. However, there might be a limit on the amount the insurance company will pay for expensive items. If you have valuables like these, it is advisable to get additional cover.
Your possessions are also covered when they are stored elsewhere. So if you take a vacation and some items are stolen from your hotel room, homeowners insurance should cover it. They sometimes have limits on how much you can claim in these situations, however.
You might also have coverage of $500 for unauthorized credit card use. So if your credit card is stolen, you don’t have to worry so much if the card issuer doesn’t cancel the unauthorized charges. These are just a few of the benefits to having homeowners insurance.
What Does Homeowners Insurance Not Cover?
Though homeowners insurance covers a lot, there are some things that you might need separate insurance policies for.
Standard insurance doesn’t provide coverage for floods or earthquake damage. If you live in an area that is susceptible to these disasters, additional insurance will be needed.
Lack of maintenance can contribute to accidents and damage to the home. Things like mold, pests, flooded drains, and neglect could create a lot of problems but may not be covered by insurance. These maintenance issues could be the responsibility of the policyholder and not the insurance company.
Should You Get Homeowners Insurance?
Who needs homeowners insurance? If you are buying a home using a mortgage, this won’t be a choice you have. Lenders require homeowners insurance, and if you don’t arrange it yourself, they will arrange it for you. This might cost you more than it otherwise would and include terms that might not be ideal. Lenders require borrowers to have homeowners insurance to protect their investment.
Since they will own some or most of your home until you’ve paid off the mortgage, they want to make sure they don’t lose their money. If the home was to suffer a disastrous event, like a fire or catastrophic structural damage, it could wipe out the value of the home. Without insurance, the lender’s investment would be gone as well as the equity you had in the home.
If you are buying without a home loan, or after you’ve finished paying the mortgage, you don’t need to get homeowners insurance. However, not doing so could be a mistake you come to regret. Your home will likely be your largest asset, and insurance protects the structure of your home and your possessions should the unthinkable happen. Since you have invested a large amount of your income in the home, protecting that is a very good idea and something you definitely need.
Final Thoughts
Hopefully by answering the question, what is homeowners insurance, how it works and what the benefits are you’ll be able to make an educated decision on whether or not you need to have it or not.
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If you plan on buying a home you might be asking yourself, what is homeowners insurance? and this article tells you along with if you actually need it. #homeownersinsurance #homeownershipClick to Tweet
About the Author
Top Wellington Realtor, Michelle Gibson, wrote:“What is Homeowners Insurance and Do You Need It?”
Michelle has been specializing in residential real estate since 2001 throughout Wellington Florida and the surrounding area. Whether you’re looking to buy, sell or rent she will guide you through the entire real estate transaction. If you’re ready to put Michelle’s knowledge and expertise to work for you call or e-mail her today.
Areas of service includeWellington,Lake Worth,Royal Palm Beach,Boynton Beach,West Palm Beach, Loxahatchee,Greenacres, and more.
