Homeowner's Insurance
What is Homeowner's Insurance?
At its basic level, home insurance or house insurance covers the home’s structure in the event of a natural disaster such as a fire, tornado, or terrible storm.
Homeowner's insurance also provides liability protection for homeowners. This means you are protected if someone fell and injured themselves on your property, your house pet hurt someone, you caused damage to someone, or did something that leads to a liability suit.
There is a common mix-up between home insurance and home warranty. Home insurance covers the cost of loss or damage that occurs suddenly and unexpectedly, while a home warranty covers home appliances and systems needing repairs or replacement due to normal use or average wear and tear. Both are essential pieces of the puzzle to homeownership but it is crucial you start first by securing your Homeowners insurance.
Is Homeowner's Insurance Required?
No law requires homeowners to purchase home insurance when owning or buying a home, but mortgage lenders can (and often do) require it to protect their investment in your property. If you cancel your property insurance and still have an outstanding balance on your mortgage, your lender can require homeowners insurance and provide it at a much higher cost. Even though home insurance coverage isn’t required by law, there are many reasons to maintain your coverage. Here are just a few:
- Insurance covers the cost of repairing or rebuilding your home after a disaster at a fraction of the original cost
- It provides liability protection to you both while at your home and while you’re away from it, protecting you financially
- It covers the cost of your personal belongings that are damaged in a weather-related disaster, stolen, or even vandalized during a crime
- It can give you peace of mind even if you own the home out-right without an existing loan
What Are The Most Common Types Of Homeowners Insurance Coverage?
There are three types of insurance coverage you can purchase. Each has its advantages and disadvantages, so get to know the details of each one to decide which suits your needs the most.
- Actual cash value: pays you what the item in question is worth today, taking into account depreciation. This means you could walk away with less than it costs to replace the item. For example, if you paid $2,000 for an item that was damaged in a storm and the insurance company determines it’s worth $700 today, you’d get $700, not $2,000.
- Replacement cost: Replacement cost coverage pays you closer to what it costs to replace a lost item. This coverage doesn’t deduct depreciation from the cost of the item, and it accounts for inflation, giving you more than you paid for the item based on the current rate of inflation. This may or may not be the full dollar amount needed to replace the item.
- Guaranteed replacement cost: Guaranteed replacement cost pays the full cost to replace your home as it was before the loss. This includes the cost of any construction or renovations you did to the home. This type of dwelling coverage ensures your home is fully reconstructed how you had it before the loss without considering policy limits or depreciation.
What Is The Average Cost Of Homeowners Insurance?
There are three types of insurance coverage you can purchase. Each has its advantages and disadvantages, so get to know the details of each one to decide which suits your needs the most.
- Actual cash value: pays you what the item in question is worth today, taking into account depreciation. This means you could walk away with less than it costs to replace the item. For example, if you paid $2,000 for an item that was damaged in a storm and the insurance company determines it’s worth $700 today, you’d get $700, not $2,000.
- Replacement cost: Replacement cost coverage pays you closer to what it costs to replace a lost item. This coverage doesn’t deduct depreciation from the cost of the item, and it accounts for inflation, giving you more than you paid for the item based on the current rate of inflation. This may or may not be the full dollar amount needed to replace the item.
- Guaranteed replacement cost: Guaranteed replacement cost pays the full cost to replace your home as it was before the loss. This includes the cost of any construction or renovations you did to the home. This type of dwelling coverage ensures your home is fully reconstructed how you had it before the loss without considering policy limits or depreciation.