What is Home Insurance & How Does it Work? (2024)

FAQs

What is Home Insurance & How Does it Work? ›

Homeowners insurance covers damage to your home, property, personal belongings, and other assets in your home. Your homeowners insurance policy may also cover living expenses above your normal cost of living if a covered loss forces you to stay elsewhere while your home is being repaired or rebuilt.

Home insurance usually covers the structure of your home and your personal belongings, typically covering the cost to repair or rebuild your home after a covered event, such as fire, hurricane, vandalism, or theft. Many policies will also cover detached structures, such as a garage, shed, fence, or gazebo.

Homeowners insurance is a type of property insurance that covers losses and damages to your home. It also protects assets in the house. The policy usually covers interior damage, exterior damage, loss or damage of personal assets, and injury that arises while on the property.

When you pay your mortgage, a portion of the overall payment is set aside in your escrow account to pay for your homeowners insurance and property taxes (and mortgage insurance if your lender requires it). Your insurance and property taxes are automatically paid from the escrow account when they're due.

Homeowners insurance is made up of coverages that may help pay to repair or replace your home and belongings if they are damaged by certain perils, such as fire or theft. It may also help cover costs if you accidentally damage another person's property or if a visitor is injured at your home.

Home insurance protects your house

So if a huge unexpected disaster takes place, like a fire or windstorm, you'll save hundreds of thousands (or millions depending on your house size) on out-of-pocket expenses.

Unlike PMI, homeowners insurance is unrelated to your mortgage except for the fact that mortgage lenders require it to protect their interest in the home. While mortgage insurance protects the lender, homeowners insurance protects your home, the contents of your home and you as the homeowner.

If you have a mortgage or other home loan, keeping an insurance policy in place is likely a requirement of your loan agreement. Your lender will be notified of policy renewals and cancellations. If you fail to purchase coverage or let it lapse, your company may send your mortgage into default.

Possibly Losing Your Home

If your mortgage lender requires it and discovers your home isn't insured, it could initiate foreclosure, resulting in the loss of your home. Or the lender might simply force you to get homeowners insurance by getting new coverage for you and adding it to your monthly mortgage payments.

What not to say to a home insurance adjuster? ›

Admitting Fault, Even Partial Fault.

Avoid any language that could be construed as apologetic or blameful.

Benefits of Paying Homeowners Insurance Yearly

Typically, you'll get a lower rate than you would if you paid it monthly. Even if your mortgage lender allows you to make monthly payments, when you're allowed to pay the premium outright, the savings can be significant.

An escrow account is not required for most borrowers. However, having an escrow account usually helps in getting the best rate and maintaining your peace of mind. If you choose to have an escrow account: The annual amount of your property taxes and homeowners insurance will be divided by 12.

Events typically not covered by standard homeowners insurance include: Floods. Earthquakes, sinkholes and other "earth movement"

Most homeowners insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available and, increasingly, it is recommended that homeowners consider purchasing at least $300,000 to $500,000 worth of liability coverage.

Decide what you want to cover. Determine how much homeowners insurance you need. Choose an insurance company. Choose a policy.

Protecting that investment from fire and other perils is extremely important. Please note, homeowners insurance policies do not provide protection against losses from floods, earthquakes, mudslides, mudflows or landslides. You can learn more about what homeowners policies cover in this guide.

Earth movement, landslide, tremors, mudslide or earthquake caused by a volcano is not usually covered under homeowners insurance.

The term 'house insurance' is usually meant to mean homeowners insurance- but it implies that the policy only protects your house. This is why professionals in the home insurance industry refer to it as homeowners insurance, or home insurance for short.