What Is Homeowners Insurance?

Homeowners insurance is an insurance policy that pays out cash when a home is damaged by weather, fire, or other means.

A Longer Definition: Homeowners Insurance

Homeowners insurance, also known as hazard insurance, gives homeowners financial protection in the event of a catastrophe. A standard homeowners insurance policy insures against interior damage, exterior damage and loss of personal assets.

For instance, if a tree falls and causes $1,000 of damage to the roof of a home, a homeowner’s insurance policy pays for covered repairs minus the homeowners insurance deductible.

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

Homeowners insurance also insures injury to others while on the property.

Mortgage lenders require homeowners insurance on every home 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, full market value, benefitting the homeowner and the lender.

Homeowners insurance is different from mortgage insurance.

Homeowners Insurance: A Real World Example

A homeowner was hosting a get-together with some friends at their new house.

During the event, one of their friends, while walking down the stairs, tripped and broke their left leg. The injured guest required immediate medical attention, an ambulance to the hospital, and eventually filed a claim against the homeowner for the injury.

Fortunately, the homeowner’s insurance policy included liability coverage, which protected the homeowner from out-of-pocket medical expenses and potential legal fees related to other people getting injured on-premises.

The insurance company handled the claim and covered the medical costs for the injured friend, safeguarding the homeowner from a significant financial burden and potential long-term legal complications.

Common Questions About Homeowners Insurance

What exactly does homeowners insurance cover for a new buyer?

For a first-time home buyer, homeowners insurance typically covers damage to both the interior and exterior, loss or damage to personal belongings, and liability for injuries on your property. This is especially crucial for new homeowners who might not have the financial reserves to cover unexpected damages.

As a first-time home buyer, do I need homeowners insurance?

While it’s not a legal requirement, if you have a mortgage, your lender will almost certainly require homeowners insurance. This is to protect their investment in your property. For first-time buyers, this insurance also serves as a safety net for your investment.

How should I choose my homeowners insurance deductible as a new homeowner?

As a new homeowner, select a deductible that would be affordable in the event of a claim. Remember, higher deductibles lead to lower premiums but mean higher out-of-pocket costs during a claim. Balancing this is key for first-time homeowners who are managing new financial responsibilities.

Will my homeowners insurance cover flood damage as a new homeowner?

Standard homeowners insurance typically does not include flood damage coverage. As a new homeowner, especially in flood-prone areas, it’s crucial to consider purchasing separate flood insurance to protect your property against such risks.

Can I change my homeowners insurance policy after buying my first house?

Absolutely, you can adjust your coverage or switch providers even after purchasing your policy. As a new homeowner, it’s wise to review your policy annually or after significant changes in your life or property to ensure it continues to meet your evolving needs.