Understanding Homeowner's Insurance

Homeowner’s insurance, or sometimes referred to as hazard insurance, covers loss and damage to your house, as well as assets inside your home. The insurance typically covers the costs needed to restore your home to its original value in the event of damage.

This insurance is needed to protect you, and it also protects the lender. If you have a mortgage, your lender will require proof that you’ve purchased homeowner’s insurance before they agree to release your funds, to ensure you’ll be able to cover any repair bills after a potential incident.

Lenders can have home buyers pay for the insurance through an escrow account. This way, your insurance premium is added to your monthly mortgage payment, allowing you to pay it monthly instead of a lump sum every year.

What Does Homeowners Insurance Cover?

Your provider will give you a list of situations you’re covered under, known as perils. While named peril policies only include coverage for the damages explicitly mentioned, open peril policies include many types of damages, unless stated otherwise.

Dwelling Coverage

Dwelling coverage is a portion of the homeowner’s insurance that protects you against physical damage to your home. Since dwelling coverage provides you with the funds to repair or rebuild your property in the event it’s damaged or destroyed, buy enough to cover the cost of building your home from the ground up.

This portion of your homeowner’s insurance will usually include:

Natural disasters, like wind, hail, sleet, and electrical storms. However, there are a few types of natural acts, such as floods or earthquakes, that require specific, separate policies.
Fires. House fires are common, which is why standard policies cover any damage caused by them. If a fire renders your home uninhabitable, your homeowner’s insurance will usually cover the cost to rebuild your home and the cost of additional living expenses.
Theft and Vandalism. If someone breaks into your home, your insurance may pay to repair the damage to windows and doors to make your home secure again.

Other Structures Coverage

Other structures not attached to your home may also be covered, such as a garage, shed, gazebo, fence, or pool. Other structures coverage allows you to protect those unattached assets to your home from the same perils for a percentage of your dwelling coverage.

Personal Property Coverage

Homeowner’s insurance covers your clothing, furniture, appliances, electronics, and other personal property. Your insurance will offer you a payout if any of these items are stolen or destroyed during a natural disaster.

Liability Coverage

Homeowner’s insurance comes with personal liability coverage, which protects you if someone is injured while on your property. Liability insurance protects you from financial loss after a lawsuit. Your homeowner’s liability insurance also protects you against damage to your neighbor’s property. For example, if a tree in your yard falls and damages your neighbor’s roof, your homeowner’s insurance will cover their repair bill.

What Homeowners Insurance Won’t Cover?

Earth Movements, like sinkholes, landslides, and earthquakes.
Water Damage. Sump pump or sewer backups are not covered.
Neglect. If your home or personal property is damaged because of your own neglect or failure to maintain your property, it will not be covered.