What Is Homeowners Insurance? Coverage, Cost, and Why You Need It

Homeowners Insurance: Explained in Plain English

Homeowners insurance, also known as hazard insurance, provides financial protection in case of a disaster. A standard homeowners insurance policy covers interior and exterior damage, as well as loss of personal assets.

For example, if a tree falls and causes $1,000 in damage to the roof of a home, the homeowners insurance policy covers repairs minus the deductible.

• If your deductible is $250, the insurance company sends $750 for repairs.
• If your deductible is $500, the insurance company sends $500 for repairs.
• If your deductible is $1,000, the insurance company sends $0 for repairs.

Homeowners insurance also covers injury to others on the property.

Mortgage lenders require homeowners insurance for properties with a mortgage because, when a home is damaged, the lender shares in the loss. A proper insurance policy restores the home to its original market value, benefiting both the homeowner and the lender.

Homeowners insurance is different from mortgage insurance. Standard policies also do not cover flood damage, so homeowners in flood-prone areas typically need separate flood insurance.

Homeowners Insurance: A Real World Example

A homeowner was hosting a gathering at their new house.

During the event, one of the guests tripped while walking down the stairs and broke their leg. The injured guest needed immediate medical attention, an ambulance, and later filed a claim against the homeowner for the injury.

Luckily, the homeowners insurance policy included liability coverage, which protected the homeowner from out-of-pocket medical expenses and legal fees related to the injury on the property.

The insurance company handled the claim, covering the medical costs, which protected the homeowner from significant financial and legal risks.