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How Does Homeowners Insurance Work?

If you already own a home, or are shopping for one, you’re going to want (or need) to protect it. Here’s how.

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Homeowners Insurance Coverage Basics

There are two main reasons to have homeowners insurance:

  1. It’s a prudent financial move to make given the high value of your home and possessions, combined with the other protections homeowners insurance offers.
  2. It’s required by lenders since most homeowners finance the purchase of their homes.

You’re not just insuring your home with a homeowners insurance policy. These policies generally provide protection against losses in all of these coverage categories.

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Damage to the building itself and any attached structures

Other structures

Damage to other unattached structures on the property like garages, sheds, and fences

Person on crutchesPersonal liability

Damages or injury to someone else for which the insured may be responsible

Medical payments

Medical expenses for anyone hurt on the property or by the insured person’s pet

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Personal property

Damages to personal property even if that property is not in the home at the time of loss

Home with fire damage

Loss of use

Expenses associated with living elsewhere while the home is repaired or rebuilt

Depending on your policy and insurance provider, you can often adjust the amounts of coverage within each of these categories to fit your situation.

To be covered by a policy, losses within these categories must be the result of a covered event, or “peril,” as they are known in the insurance world. Common perils covered under standard homeowners insurance policies include:

  • Fire
  • Smoke
  • Windstorm
  • Hail
  • Lightning
  • Weight of snow, ice or sleet
  • Falling Objects
  • Civil Unrest
  • Vehicles
  • Explosions
  • Vandalism
  • Theft
Tip: It’s important to recognize that floods, earthquakes, insect damage and normal wear and tear are generally not covered in a typical homeowners insurance policy. However, protection against floods or earthquakes can be obtained through additional coverage or government insurance programs.

Roles and Responsibilities

Here’s a quick rundown of the basic roles and responsibilities involved with acquiring and using homeowners insurance.

Choose an insurance company Offers homeowners insurance
Select your coverages from the options available Offers various coverage options and amounts
Pay your premiums on time Issues policy insuring your home and possessions
File claims for accidents or other losses covered by your policy Evaluates claims and if judged to be valid, pays expenses associated with them, minus any applicable deductibles