Opening the Door to Homeowners Insurance
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.
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
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,
Although policies vary, a typical homeowners policy
provides coverage for damage to property caused by:
- Fire and lightning
- Windstorm and hail
- Theft or vandalism
- Falling Objects
- Weight of ice, snow, and sleet
- Freezing of plumbing, heating, or air conditioning system
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
- 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.
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
a minimum of $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.