Home insurance is essential for protecting this valuable asset and the property you keep in and around it. While most homeowners recognize the need to carry a policy, they may not be familiar with the types of coverage it provides. Understanding the insurance fundamentals can help you determine if you have adequate protection — or if it’s time for an upgrade.
The purpose of home insurance is to protect against covered losses identified in the policy. Without insurance, you would need to pay for these costs out of your own pocket, which could have devastating financial consequences.
Several types of home insurance policies are available:
A home insurance policy consists of several components.
The dwelling portion protects the home and attached structures, such as garages and decks, when damage occurs from a covered peril. Dwelling coverage applies to the actual structure and not its contents or the surrounding land. However, it does protect installed interior fixtures and permanently attached appliances.
Your home likely contains valuable property like furniture, clothing, kitchenware and electronics. The personal property section of your policy covers these items in the event of a loss from a covered peril.
Suppose a visitor sustains an injury from a fall while on your property or receives a bite from your dog. The injured party could decide to sue you, which could cause significant financial hardship. Liability insurance protects you from these types of third-party claims. It typically covers court judgments and settlements, medical bills, legal fees, repairs and other costs associated with the incident.
Many of the covered perils listed on a home insurance policy include damage from natural causes like lightning, hail, wind and volcanic eruptions. However, most plans don’t cover every type of natural disaster.
If you live in an area prone to flooding or earthquakes, you likely won’t have coverage for these incidents since most insurance companies want to avoid the higher risk. You’ll need to purchase a policy that provides specialty coverage for these events, typically at a much higher premium.
While home insurance policies protect homeowners from many perils, there are some items they exclude or will cover only by adding an endorsement.
Besides floods and earthquakes, a home insurance policy may exclude coverage for various incidents, such as:
Endorsements, also known as riders, are changes to a policy that add, modify or, in some cases, exclude coverages or alter the document’s terms and conditions. Common endorsements include water backup damages, sump pump overflows and identity theft protection. Homeowners typically must pay extra to include an endorsement.
A home insurance policy includes several financial aspects that homeowners should become familiar with to learn how they impact their situation.
When a covered event occurs, your insurance company will compensate you for your loss up to the limits outlined in your policy. However, you may need to pay a deductible, which is an amount that the insurer subtracts from your payout and requires you to pay to share a portion of the risk.
For example, suppose lightning strikes your home’s roof and the insurance company agrees to pay you $5,000 to cover the damage. If your policy includes a $500 deductible, you will only receive $4,500 from the insurer.
The amount of your deductible directly impacts the premium you pay for your policy. A higher deductible means you are assuming more of the risk, resulting in a lower premium. The opposite is true if you choose a lower deductible.
The premium is the amount you pay to the insurer on a monthly, quarterly, semi-annual or annual basis to obtain the policy and keep it in force. Premiums can vary widely due to uncontrollable factors, such as the company’s rate structure and the size and location of the property. Several controllable factors can raise or lower your premium, such as your home’s condition, the number and severity of claims you file and even your credit score.
When you experience an event involving a covered peril, you’ll need to file a claim with your insurance company to receive compensation. Following these steps can increase the likelihood of a successful outcome:
Always read the policy’s fine print to verify you’re adhering to all applicable terms and conditions regarding the claims filing process. A misstep could limit the amount you receive or void coverage.
David Pope Insurance Services, LLC is a family-owned insurance agency in Missouri that can help you find a comprehensive home insurance policy that fits your family’s needs and budget. Contact us to request a custom quote today.