What does Home Owner's Insurance cover?

A common term that homebuyers will always find in their mortgage loan contract is the requirement to purchase a homeowner's insurance policy. This policy is a necessary condition of almost all mortgage loans, and it serves to protect the bank, and the homeowners, if the home were to be destroyed.

What does Home Owner's Insurance cover?

Home Owner's insurance coverage falls into two categories, which are property and liability coverage, though all coverage is paid for by a single premium with any chosen policy (they cannot be divided or excluded). Property coverage insures against damages relating to the home's contents and its physical value as a home, including damage to the structure of the home, damage to its contents, or loss of its functional use (leading to additional living expenses). Liability coverage, on the other hand, insures homeowners against accidents that might occur to or in the home, at the hands of the homeowner. For purposes of determining the liability portion of insurance coverage, homeowners must indicate a person to be named in the policy, and that person must actually reside in the home.

Home Owner's insurance coverage is a contract

The insurance policy itself is a lengthy contract, and it lays out the scenarios in which the home will be covered, and what will and what will not be paid in the case of various events. The home insurance policy is most commonly offered as a term contract, which is a contract that is in effect for a fixed period of time. In regards to payment terms, the payment that the insured, or the homeowner, is obligated to pay to the insurer is called the premium. All of the information about the amount and frequency of premium payments should appear in the terms of the policy.

It is also helpful for homeowners to know that most insurers charge a lower premium if it appears less likely the home will be damaged or destroyed. For example, if the house is situated next to a fire station, if the house is equipped with fire sprinklers and fire alarms, or if the house contains protective measures, such as hurricane shutters.

How much does home owner's insurance cost?

The cost of homeowner's insurance often varies depending on how much protection a homeowner would like to have, and the likely cost of replacing the house and the additional items a homeowner includes in the coverage. Typically, claims due to floods, power failure, neglect, intentional loss, earth movement government action, nuclear hazard, or termites, are standard exclusions in the most common type of policy, and are not covered. However, homeowners have the option to obtain further insurance against these and other damages by looking into a broader policy, or special insurance.

The Rare Exception

In rare cases, a bank will waive the necessity for homebuyers to purchase homeowner's insurance when the value of the property exceeds the amount of the mortgage balance. This ensures that even in the case that there is severe property damage, the bank will still be able to foreclose on the home and recover the mortgage loan amount.

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