What is Home Insurance?
Home Insurance or Homeowners Insurance is a type of property insurance that can help provide financial coverage against certain losses or damages to the policyholder's home and properties within it. It is an insurance agreement between an insurance company and a homeowner in which the insurance company helps the homeowner to pay for the losses or damage that occurred within the boundary of the insured home or residence in return for the premiums paid by the homeowner. Furnishings and assets present within the boundary of the home or residence is also covered under the home insurance.
Home Insurance also offers liability coverage to financially help protect the policyholders against accidents within the boundary of the home that can lead to third-party injury or damages. For example, if your friend gets injured due to a slip or fall accident within the boundary of your home, your insurance provider will take care of the medical expenses of the injury treatment.
How Does Home Insurance Work?
Home Insurance works like property insurance. The home insurance policyholder pays premiums under the policy terms and conditions to an insurance company to get financial coverage against any interior or exterior damage or loss that occurs in their home, including the liability coverage. In most home insurance policies, policyholders need to pay a deductible on filling a claim when any of the above-mentioned incidents happen. A deducible is an out-of-pocket amount paid by the policyholder in order to get coverage from their insurance provider.
In order to simplify things for you, let's take an example. Suppose you're a home insurance policyholder and made a claim to your insurance provider for interior water damage that occurred in your residence. Let's say the repairing cost to make your home tenantable again is around $9000. If your claim gets approved, you will be informed to pay a deductible of about $3000, depending on your policy's terms and conditions. The remaining $6000 would be paid by your insurance provider. The amount the deductibles plays a crucial role in the rate of monthly premiums. If your deductibles are high, you're most likely to pay less in the monthly or annual premiums and vice versa.
What Does Home Insurance Cover?
Although the home insurance policies are highly customizable, a typical homeowners insurance policy provides certain standard coverages to the policyholders, including:
· Coverage for Interior and Exterior Damages
Interior damages are referred to the losses or damages that occurred inside your residence or home, while exterior damages are those that occurred outside your home. These damages may result from:
- Other Covered Disaster
Your insurance can help you pay the repair costs of your home if the interior or exterior damage occurs from a covered loss. Some homeowners insurance providers compensate the policyholders for even wholly rebuilding. You must keep in mind that home insurance does not cover the interior or exterior damages that occurred due to natural disasters like floods or earthquakes. Issues related to home maintenance may also not be covered under home insurance. However, if your want to get protection coverage for poor home maintenance-related issues, you can add separate riders in your insurance policy by paying more in premiums.
Home appliances, clothing, furniture, and most other assets in your home are covered under your home insurance policy if they get damaged due to a covered disaster. You can even get "off-premises" coverage for your valuable items like jewelry, but as we mentioned earlier, you'll have to pay more in premiums.
The amount that is reimbursed to you by your insurance provider as a result of filing a claim is limited and depends on the terms and conditions of your insurance policy. Most insurance companies pay out 50-70% of the total worth of your insurance policy. For example, if the total worth of your insurance coverage is $300000, your insurance company can provide you're the coverage up to $200000 to $250000. If you own too many valuable and high-priced items in your home, like fine art, antiques, or jewelry, you must purchase riders to cover them or pay extra in your monthly or annual premiums.
· Liability Coverage for Third-Party Damages or Injuries
Liability coverage or personal liability coverage is one of the critical coverages of a typical home insurance policy that provides you financial protection from lawsuits filed against you by a third party due to a third-party injury or damage. For example, you're hosting your neighbors in your home, and one of your neighbors gets injured by slipping from your wet floor. In that case, your insurance provider can help you pay the expenses of medical treatment of your neighbor's injury. Some home insurance policies also include your pets in the liability coverage which means if your pet bites someone third-party like your neighbor, your insurance provider can pay their medical expenses regardless of the place where biting has taken place.
Another benefit of personal liability insurance is that if you and one of your insured family members cause third-party damage, your insurance provider can pay for the compensations or repairing cost. For example, if your kid breaks your neighbor's Ming Vase (which is valuable indeed) and you get sued for it, your insurance provider can take care of it both financially and legally.
Most Home Insurance policies provide the liability coverage of around $100000, but insurance experts recommend getting coverage of about $300000 minimum. Although you've to pay a few hundred dollars more in premiums for this extra protection, it is worth considering adding strong financial and legal protection around your home insurance policy.
· House Rental Coverage
Although it's rare, sometimes your home doesn't fit for living because of interior or exterior damage, and you're forced to live in a rental house or hotel. In that case, if you are insured under home insurance, your insurance provider can take care of the expenses of a rental house or hotel. It's undoubtedly the best coverage if your home is located in coastal areas or the red geographic zone. House Rental coverage is also known as additional living expenses coverage that reimburses you for the rent of a hotel room, rental house, or restaurant meals if you're living out of your home because of ongoing repairing processes.
House Rental Coverage also covers the incidental cost you are entitled to pay while living in a rental space waiting for your home to be tenantable again.
What are the Different Types of Home (Homeowners) Insurance Policies?
Not all home insurance policies are created equal. Some are costly but with maximum coverage, while others are cheap but with a lower level of coverage. The amount you pay in premiums and coverage you get from your home insurance policies depends on the level of home insurance you've chosen. A wide range of coverage levels are sold by the insurance companies globally, but there're three most popular and widely purchased levels of home insurance coverage, including:
· Actual Cash Value
Actual Cash Value is the basic level of home insurance coverage. It covers the actual cost of your home plus the value of assets and belongings after deducting the value depreciation. The simple way to understand the actual cash value is to consider the current worth and value of your items, not the value you've paid while purchasing them. In Actual Cash Value, the insurance companies consider the current cost and value of your house pulse your belongings and assets. If you don't own valuable items in the house and your house is not too much expensive either, actual cash value coverage is a good choice for you.
· Replacement Cost
Replacement Cost or Replacement Value Coverage works the same as Actual Cash Value except for the dedication of value depreciation. In this level of coverage, your insurance provider considers the worth or value of your house plus belongings and assets according to the cost you've paid to buy them. It considers how much you paid for your home and assets, not the current worth of them.
· Guaranteed (or Extended) Replacement Cost
This is the most comprehensive and highest level of home insurance coverage. It's also known as the inflation-buffer policy that provides guaranteed compensations for whatever it costs to you repair or rebuild your home to make it tenantable again. Policy limits are not applied in Guaranteed Replacement cost coverage. You'll be paid for whatever the amount required to rebuild or repair your home, even if it surpasses your policy coverage limit. Most insurance companies offer extended replacement cost coverage in which you can get 20% to 25% above your policy coverage limit.
What isn’t covered by Home Insurance?
We have summarized the coverages of Home Insurance in detail. Now, we take a look at the exclusions of homeowners insurance. A typical home insurance policy doesn't cover the damages or losses that occur due to natural disasters or the "act of God." The damages caused by acts of war are also not included in home insurance coverage.
If you live in an area that is highly susceptible to floods or hurricanes or it has a history of earthquakes, your home insurance policy may not cover you for it. In that case, you'll need add-ons and riders like earthquake insurance or flood insurance. However, you have to pay more in premiums to get these riders and add-ons. Some insurance company also provides identity recovery coverage under the umbrella of home insurance that reimburses you for the expenses related to being a victim of identity theft.
How Much Does Home Insurance Cost?
According to NAIC (National Association of Insurance Commissioners), the average cost of home insurance is around $1200 per year or $100 per month. However, it doesn't mean that the average cost of home insurance is the same for all the states. The cost of home insurance depends on a wide range of factors that we're going to discuss here in detail. We'll also discuss how you can save on your premiums at the end of the article.
Factors affecting the cost of Home Insurance
Whenever you decide to buy a home insurance policy, you will receive a quoted rate based on a wide range of factors. Here're some common factors that play a key role in increasing or decreasing your home insurance policy's price:
The geographic location of Your Home
As we mentioned earlier, the geographic location of your home can impact the prices and coverage of your home insurance policy. If you live in a town, city, or state which is more vulnerable to natural disasters and "acts of God," the prices of your home insurance policy can be high and vice versa.
Your Credit History
If you're a homeowner with a good credit history, insurance companies may offer your home insurance policy at a lower rate. Credit plays a key role in getting coverages and claim approvals under your home insurance policy.
Actual Value or Price of Your Home
The price of your home has a direct impact on the price of your home insurance policy. If your home is costly and has cost you more to rebuild, you need a comprehensive home insurance policy to cover it. To get comprehensive coverage, you have to pay more in monthly premiums that can significantly add to your home insurance policy's price.
The coverage level you choose has a direct impact on the price of your home insurance policy. If you choose the basic coverage level, which is Actual Cash Value, you'll have lower quoted rates. On the other hand, guaranteed replacement cost coverage can cost you more because it offers a comprehensive level of coverage.
The home insurance policies with higher deductibles are cheap to buy than the policies with lower deductibles.
What to do to save more on Your Home Insurance Policy?
Although there's a very low margin of discounts in terms of home insurance, you can still save a considerable amount on your home insurance policy by following these valuable tips:
· Analyze Your Deductibles
Most Home insurance providing companies leave to choose deductibles for the policyholders. It means you have the option to select your deductible. Common deductibles in home insurance policies are around $500 to $2500. Some insurance uses a small percentage of their dwelling coverage to specify the deductible. If you're affluent and can pay a higher deductible, you're most likely to save more on your monthly or annual premiums.
· A good credit score is a key to saving more.
Most insurance companies use your credit rating and score while providing you with the quoted price. If you're a good credit score and history, you're likely to save more on your home insurance policy. Maintaining a good credit score can help you save a lot on your monthly and annual premiums.
· Compare different Home Insurance quotes to choose the best one
If you're going to purchase of home insurance policy for yourself and want to save maximum on it, we recommend you get quotes from various home insurance providers and then compare them to choose the best one that fits your needs. You can use the services of a professional broker to find an affordable and customized home insurance policy for You.
Home Insurance or Homeowners insurance covers both interior and exterior damages or losses. It also provides personal liability coverage and rental expenses coverall. The amount and limit of coverage depend on the terms and conditions of your policy. The cost of home insurance depends on a wide range of factors, including the geographic location of your home, your credit score, the price of your home, and the level of coverage you're choosing. You can save more on your annual or monthly premiums by following our helpful tips.
The above description provides a brief overview of the terms and phrases used within the insurance industry. These definitions are not applicable in all states or for all insurance and financial products. This is not an insurance contract. Otherterms, conditions and exclusions apply. Please read your official policy for full details about coverages. These definitions do not alter or modify the terms of any insurance contract. If there is any conflict between these definitions and the provisions of the applicable insurance policy, the terms of the policy control.