If you own a home, skimping on homeowner’s insurance may seem like the fiscally responsible thing to do, but it is quite the contrary.
Homeowners insurance is a smart investment, protecting not only your home but the items inside that you have earned with your hard work.
It would be devastating to lose everything because of a fire or natural disaster with no coverage to make sure you will be compensated for your loss.
What Is Homeowner’s Insurance?
Homeowners’ insurance policies cover destruction and damage to the interior or exterior of your house. They can pay to repair or replace your house and other structures on your property, working closely with companies that provide service restoration.
It also covers the loss or theft of your stuff not only inside the house but also when you are away. The policies also provide personal liability for harm to others if you are held responsible for an accident or injury.
Though it is not required to have by law, your mortgage lender will most likely prefer you have one to protect its investment. If you do not have a mortgage, purchasing homeowners insurance is still a smart decision.
What Does It Cover?
Policies typically offer coverage for damage to the home and attached structures like a porch, stand-alone structures on your property like a fence or shed, pay to repair or replace belongings that have been stolen or damaged in a covered event, helps pay temporary living expenses while your home is being repaired or replaced, pays if you injure someone or cause property damage unintentionally or through neglect, as well as paying to treat someone injured on your property regardless of who is at fault.
There are three levels of coverage that include an actual cash value, replacement cost, and extended replacement cost or value.
Actual Cash Value
This covers the cost of the house in addition to the value of your belongings after deducting depreciation.
This type of coverage covers the actual cash value of your home and possessions without the deduction for depreciation, enabling you to repair or rebuild your home back up to its original value.
Extended Replacement Cost
This coverage pays for whatever it costs to repair or rebuild your home despite it being more than your policy limit, meaning it offers more coverage than you purchased. Typically the ceiling is 20 percent to 25 percent higher than the limit.
Types of Homeowners Insurance
Homeowners insurance comes in several types, the most popular being HO-3. This is also called “special form” and cover damage to your home from any cause except named policy exclusions like earthquakes or floods.
The type of homeowner insurance that gives you the broadest coverage is HO-5 as it is the most extensive. It pays for damage from all causes except for named policy exclusions. The limited coverage options fall between HO-1 and HO-2.
These policies only cover damage caused by issues listed in the policy.