What is homeowners insurance? Homeowners insurance provides financial protection against disasters. A standard policy insures the home itself and the things you keep in it. Homeowners insurance is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. This includes damage caused by household pets. Damage caused by most disasters is covered, but there are exceptions. The most significant exceptions are damage caused by floods, earthquakes, and poor maintenance. You must buy two separate policies for flood and earthquake coverage. Maintenance-related problems are the homeowners’ responsibility and you cannot buy coverage for them. |
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What is in a standard homeowners insurance policy? A standard homeowners insurance policy includes four essential types of coverage.1. Coverage for the structure of your home. This part of your policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning, or any other disaster listed in your policy. It will not pay for damage caused by a flood, earthquake, or routine wear-and-tear. When purchasing coverage for the structure of your home, it is important to buy enough to rebuild your home. 2. Coverage for your personal belongings. Your furniture, clothes, sports equipment, and other personal items are covered if they are stolen or destroyed by fire, hurricane, or other insured disaster. Most companies provide coverage for 50% to 70% of the amount of insurance you have on the structure of your home. For example, if you have $100,000 worth of insurance on the structure of your home, you would have between $50,000 to $70,000 worth of coverage for your belongings. The best way to determine if this is enough coverage is to conduct a home inventory. 3. Liability protection. This covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by your pets. For example, if your dog accidentally ruins your neighbor’s expensive rug, you are covered. However, if your dog destroys your rug, you are not covered. 4. Additional living expenses in the event you are temporarily unable to live in your home because of a fire or other insured disaster. This pays the additional costs of living away from home because your home was damaged from fire, a storm, or another insured disaster. It covers hotel bills, restaurant meals, and other living expenses incurred while your home is being rebuilt. Coverage for additional living expenses differ from company to company. Many policies provide coverage for about 20% of the insurance on your house. You can increase this coverage, however, for an additional premium. Some companies sell a policy that provides an unlimited amount of loss-of-use coverage (for a limited amount of time). |
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Are there different types of policies? Yes. A person who owns his or her home will have a different policy from someone who rents. Policies also differ according to the amount of insurance coverage provided. The different types of homeowners policies are fairly standard throughout the country. However, individual states and companies may offer policies that are slightly different or go by other names such as ‘standard’ or ‘deluxe’. The one exception is the state of Texas, where policies vary somewhat from policies in other states. The Texas Insurance Department ( http://www.tdi.state.tx.us ) has detailed information on its various homeowners policies.If you own your home… If you own the home you live in, you have several policies to choose from. The most popular policy is the HO-3, which provides the broadest coverage. Owners of multi-family homes generally purchase an HO-3 with an endorsement to cover the risks associated with having renters live in their homes.
If you rent your home…
If you own a co-op or a condo…
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Can I own a home without homeowners insurance? Unlike driving a car, you can legally own a home without homeowners insurance. But if you have bought your home and financed the purchase with a mortgage, your lender will most likely require you to get homeowners insurance coverage. This is because lenders need to protect their investment in your home in case your house burns down or is badly damaged by a storm, a tornado, or other disaster. If you live in an area likely to flood, the bank will also require you to purchase flood insurance. Some financial institutions may also require earthquake coverage if you live in a region vulnerable to earthquakes. If you buy a co-op or condominium, your board will probably require you to buy homeowners insurance. After your mortgage is paid off, no one will force you to buy homeowners insurance, but it doesn’t make sense to cancel your policy and risk losing what you’ve invested in your home. |
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Why is it important to take a home inventory and how do you do it? Would you be able to remember all of the possessions you’ve accumulated over the years if they were destroyed by a fire? Having an up-to-date home inventory will help you get your insurance claim settled faster, verify losses for your income tax return, and help you purchase the correct amount of insurance.Start by making a list of your possessions, describing each item and noting where you bought it and its make and model. Clip to your list any sales receipts, purchase contracts, and appraisals you have. For clothing, count the items you own by category — pants, coats, shoes, etc. – making notes about those that are especially valuable. For major appliance and electronic equipment, record their serial numbers (usually found on the back or bottom of the appliance).
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