Buying a house is a big deal in life that requires many steps before closing. One of the steps you must take is purchasing homeowner’s insurance.
If you are buying your first home, you might wonder, “what is homeowner’s insurance?” Many first-time homebuyers ask this question, mainly because they’ve never had to buy it before.
Homeowner’s insurance is a product you need when you own a house. It protects you in many ways, and you should never go without it.
If you have questions about home insurance, continue reading this guide to learn everything you need to know about this essential insurance product.
Home Insurance Protects Your Assets
Homeowner’s insurance is a product that you must purchase before closing on your new home, and its purpose is to protect your assets. The main assets it protects are your home and belongings.
When you buy a policy, you can feel peace of mind knowing that you’ve covered your risks. So, how does a homeowner’s insurance work? If you ever experience a covered loss to your home, you file a claim with your provider.
The provider must evaluate the claim to determine three things:
- Is your policy currently effective?
- Does your policy cover the peril that caused the damage?
- Does the damage exceed your deductible?
If your policy is effective and covers the peril that caused the damage, the insurance agent will determine the value of the damages. If the damages are more than your deductible, they will compensate you for them, minus the deductible.
If the damages are less than your deductible, there is no point in filing a claim. Your insurance policy wouldn’t cover the costs in this case because you are responsible for paying the deductible first.
Homeowner’s Insurance Provides Other Protection
In addition to providing coverage for your house and belongings, homeowner’s insurance also provides other protection. The other type of protection it offers is liability coverage.
Liability coverage is something you might be familiar with through your auto insurance policy. With auto insurance, liability coverage protects against losses you cause to others. With home insurance, it’s the same principle.
Liability coverage for your home insurance protects against injuries and damages that other people experience while at your home. If someone slips on the ice at your home, they could sue you for their injuries.
If a person falls and breaks their leg while visiting your home, they could also sue you. If anyone visits your home and gets injured while they, you are at risk for a lawsuit.
Liability coverage through your home insurance policy protects you against these events. If something like this happens, you can file a claim with your homeowner’s policy, and your provider will pick up the tab.
Having home insurance to protect your assets is vital, but having it for this purpose is equally important.
The Risks You Take If You Don’t Purchase a Policy
You should now understand, “why do I need homeowner’s insurance?” If you still have questions, though, it might help to learn the risks of not purchasing a policy.
When you buy a home, you invest money into the property. If you have a loan on the house, your lender has money invested in it. The investments you and your lender make into the property could easily be lost if you lose your home.
Imagine if a fire struck inside your home and led to a complete loss. Without homeowner’s insurance, you would lose every penny you invested in the house, and you would still owe your lender the full balance of your loan.
Additionally, you would have nowhere to live, and you would own nothing. These are the risks you take by not purchasing homeowner’s insurance. Most people are not willing to take these risks, so they buy home insurance plans.
Tips for Choosing the Right Coverage Types and Amounts
One of the most challenging parts of buying home insurance is choosing the right coverage types and amounts. How much coverage do you need, and what types are necessary?
The best place to begin is by determining how much it would cost to rebuild your home. Once you know the answer to this question, you can purchase a policy that offers this amount of structural coverage.
The next thing to do is to add up the value of all your things. If you lost everything you own, how much would it cost to replace all these items? Once you know this amount, you can use it for your personal belonging coverage on your plan.
Additionally, you can ask your insurance agent if the policy covers every asset you own. The answer to this question is usually “no.” Most policies don’t cover expensive, valuable items, such as diamond jewelry.
If you have expensive items like this, your agent might recommend adding riders (also called endorsements) to the plan to cover these items. It costs a little more to add them, but it also provides the coverage you need.
You’ll also have to select your deductible amount. The deductible is the amount your insurance company requires you to pay before they compensate you for your claims.
Once you know what coverage types you need and the amounts, you can call around for quotes. Getting quotes is the best way to perform a homeowners insurance comparison, which allows you to select the best policy for your needs.
You shouldn’t base your decision on cost alone, though. Instead, you should factor in the coverage types, amounts, deductible, and costs. From there, you’ll know which one to choose.
What Is Homeowner’s Insurance? It’s Protection!
So, do you still have questions related to, “what is homeowner’s insurance?” If so, you can ask an insurance agent any questions you might have.
Buying home insurance is a necessity for all homeowners, and it is not something you should ignore.
Now that you understand the basic principles of homeowner’s insurance, are you ready to learn about other insurance types? Our blog contains helpful articles on this subject and others, so check it out today!