Homeowners insurance

What do you need to know?

Homeowners insurance protects your home, its contents and even the family members within your household from loss in a wide variety of situations. If a house is damaged or should someone be injured on the property, having insurance helps owners cope with the financial consequences. Homeowners insurance is actually a combination of two different levels of protection, Liability and Hazard insurance.

Liability Insurance

Liability insurance covers personal liability for accidents that occur on your property. Should your neighbor trip on a hose in your yard and break his ankle, for example, your liability insurance will pay for his medical expenses, up to the policy limit. Liability Insurance covers the costs of being sued for bodily injury sustained on your property or, occasionally, caused by your accidental actions or oversights.


Hazard Insurance

Hazard insurance protects you against financial loss from anything that could cause unintentional damage or destruction to your house or its contents, or hazards. Covered hazards include fire, storm, theft, vandalism and other similar threats. This type of insurance pays you for the damage or loss of the physical structures on your property and the belongings inside and around your home.


Mortgage Requirements

One of the main reasons homeowners need insurance is that mortgage companies often require it. Unless you own your home outright, the mortgage holder is going to require property damage insurance so their investment is protected. Most banks also require people with mortgages to hold a homeowners insurance policy, because it protects their interests in the event of a major loss. Your bank may also specify the type of coverage you must have. Some will require you to have coverage for the ‘actual cash value’ of your home. This is the amount of money that the house is worth on the open market. Other banks will require that you cover your home for its ‘replacement value.’ This is the amount that it would cost to rebuild your house from the ground up. Depending on your situation, one could be higher than the other. The replacement value of an older home may exceed its cash value if the home is made of brick or stone and other materials.


Force-Placed Insurance

There are often drawbacks to letting your homeowner’s policy lapse. Most mortgage contracts give the bank the authority to buy insurance on behalf of the homeowner. The bank can then charge the homeowner for this policy. These "force-placed" policies are often much more expensive than what a homeowner can obtain on their own. In addition, this policy may only cover the cost to replace the building itself and not the contents. Purchasing insurance on your own terms will not only save you money but it will give you more coverage.

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