A home is usually a homeowner's largest and most valuable asset. With home insurance, the property, structure, and the contents of the home have at least some degree of protection. These tips help homeowners understand what home insurance does and does not cover.
What Is Home Insurance?
The premise behind homeowners insurance is that people may be financially compromised by the loss of their homes due to certain circumstances. A devastating house fire could result in tens or hundreds of thousands of dollars in damage, a sum that not many people have readily available to pay. People purchase home insurance policies to provide them with a higher degree of protection than they can guarantee on their own. Homeowners pay regular premiums to an insurance provider, which sets rates based on the home's risk for damage, and the amount of coverage the homeowner prefers. Since claims on homeowners insurance policies are relatively infrequent, insurance companies can group people's insurance premiums together to balance out one person's loss.
Are There Different Types of Homeowners Insurance?
The type of insurance coverage that homeowners might choose depends on the kind of home they own, and the level of support they want after a burglary or disaster. There are unique home insurance policies for:
- single-family homes
- condominiums and co-ops
- manufactured homes
When people purchase a new home and a homeowners insurance policy, they are typically encouraged to select a policy based on actual cash value or the replacement cost of the items that are damaged. The actual cash value of an item may be much lower than its replacement cost, due to natural depreciation. As such, owning an insurance policy that covers replacement cost is more likely to cover a homeowner's total expenses.
Does Home Insurance Cover All Damage?
Since insurance coverage varies widely from policy to policy, there may be many things that are not covered. Insurance companies typically set caps on the amount of liability they will shoulder on a particular policy. As a way to protect themselves in advance, homeowners should familiarize themselves with their policy's coverage limits, and determine if it will be adequate. Items that increase in value or that may be taken out of the home frequently, such as technological equipment or expensive jewelry, often require special coverage to be covered under the policy. In addition, many policies do not offer coverage on certain types of damage, such as earthquakes or flooding caused by natural disasters. Homeowners may be able to add extra protection for these types of incidents, through their insurance agent or another carrier.
Is Home Insurance the Same as a Home Warranty?
Home insurance and home warranties fulfill very different purposes. A home warranty serves as a basic protection for certain equipment, structures, and systems within the home. The coverage varies, but homeowners can often use a home warranty to save money on repairs or replacement of equipment that breaks soon after they buy the home. By comparison, homeowners insurance provides money for repair or replacement for items that were lost or damaged through unusual circumstances. For example, a faulty dishwasher might be covered by a home warranty, but would likely not be covered by an insurance policy for their Frenchman's Creek home.
Understanding the basics of home insurance is something that every homeowner should strive to do long before they ever need to make a claim. With this information, home buyers can search for and select the insurance policies that will work best for their needs.