Homeowners insurance guide

Homeowners insurance, also known as home insurance isn’t a luxury, it’s a necessity. All mortgage companies demand that you have insurance coverage and won’t finance a residential real estate transaction it. And while most people are required to purchase insurance on their homes, few fully understand the entire exercise. Here’s our homeowner’s insurance guide; including what your policy does and when to make policy changes. Furthermore we will examine where to shop for home insurance, why it is priced the way it is. Most importantly we will explore how you can take control of the process.

This guide will aid dissect the jargon, terminology and documentation involved in home buying. Consequently we will explain how home insurance operates. In these six main sections, you will:

  • Learn some commonly used home insurance terms;
  • Understand the types of coverage available;
  • Master the crucial tips on how to shop (and save) for insurance;
  • Discover the importance of maintaining your policy over the years; and
  • Learn how to file a claim.

1. What insurance does

A. Homeowners insurance

To begin, homeowners insurance is essentially designed to cover private homes and their contents. Premiums made to the insurer, cover both property and liability insurance. There are principally three main reasons to get homeowners insurance:

  • Property coverage. In the event of personal property damage or destruction, home insurance covers the physical structure of your home. Also, freestanding garages, sheds or other structures on the property may also need to be covered separately using the same guidelines as for the main house.
  • Liability coverage. If someone who isn’t covered under your policy is injured or killed, or their property is damaged or destroyed while they’re on your property, your homeowners policy will cover your personal legal responsibility. In addition, the coverage extends to cases where damage or injury happens adjacent to your property.
  • Satisfy your mortgage lender – Most lenders require you have insurance as long as you have a mortgage.

B. Why lender’s require insurance

In most likelyhood your mortgage lender will insist that you purchase homeowners insurance. Your monthly payments will include this cost, along with property taxes.The major reason mortgage lenders require insurance is to best protect their investment.

2. Homeowners insurance jargon

Here are some explanations for common homeowner’s insurance terms.


A person tasked to conduct an inquiry investigating into a claim to determine the extent of an insurer’s liability. The investigation can include interviews of the parties involved, property inspections, and reviewing hospital records or police reports. Adjusters can represent specific insurance companies or can be a “public adjuster” hired by the claimant to work independently.


An assessment of a home insurance property claim by an adjuster, to determine property value.


The termination of a homeowners policy before its agreed-upon expiration date.


A homeowners appeal for compensation under the terms of the policy.


The amount that a policyholder must pay out of their own pocket before coverage kicks in, even when a claim is accepted.


The approximated decline in value of property over time due to wear, tear, and aging.


A provision, document, or clause added to a homeowners policy that modifies the original coverage offered by the policy.


Items, conditions or circumstances that are not covered under a homeowners policy.

Exclusive agent

An agent who exclusively sells the products of only one insurance company.

Group policy

A policy that covers a defined group of people. For example the members of a society, professional association, or the employees of a particular employer. All participating members are included under one master policy. Each receives an individual certificate of coverage from the group policy.

Independent agent

An insurance agent who represents more than one company.

Individual policy

A policy sold directly to an individual.


An interference in coverage caused by non-payment of the premium.

Liability coverage

Provides protection for bodily injury or property damage that occur to others on the homeowners property.

Market value

The present value of your home, including the land on which it is built.


The refusal by an insurance company to renew a policy at the end of its current term.


A specific risk or reason for a loss.

Personal property

Articles that are transferable and not permanently affixed to the home.


A written contract between an insurer and customer specifying coverage for loss or damage to property.


An amount paid periodically to the insurer by the insured for covering his risk.

Property coverage

Protection for land or personal property against loss or damage.


The process that insurance companies use to determine eligibility and premiums for coverage.

3. Understanding your policy

In the first place you need to have an in-depth understanding of property insurance. Secondly, appreciate that not all homeowner’s policies are the same. Not having profound knowledge of the contents of your policy can have serious financial consequences.

A. Coverage

For most policies, the list of covered hazards includes:

  • Fire, smoke, wind or lightning,
  • Theft or vandalism
  • Trees and other falling objects
  • Overflowing of a plumbing, heating, air-conditioning appliance or sprinkler system

B. Uncovered items

The most notable excluded perils include:

  • Floods
  • Land movement, including earthquakes, landslides and mudflows
  • Acts of war
  • Damage from pets
  • Pollution damage
  • Deliberate damage to the home
  • Normal wear and tear

C. Limits of coverage

There restrictions to the amount of payment you can receive from your insurer even if you suffer a loss that is included as a covered peril. When you first get homeowners insurance, your insurance agent will help you decide how much dwelling, personal liability and medical payments coverage to buy. Your cover will be based on the value of your home.

D. Deductibles

An amount paid out of the pocket of the policy holder before the insurer will make payments against a claim.

4. Shopping for homeowners insurance

Insurance companies and agents charge greatly varying rates for essentially the same coverage. Therefore it’s in your best interests to do substantial research on the best deals and to ask the right questions. Thereby enabling you to know what you’re actually getting.

We’ve prepared a handy list of questions to ask an agent while you’re shopping around for quotes.

  • Firstly, what is the claims history of the home I am considering?
  • Secondly, If I submit a claim, how will it affect my premium when I renew the policy? Could it subsequently end up costing me overall?
  • Thirdly, how will my credit history affect my premium?
  • Next, what does the policy cover? What doesn’t it cover? What are the limits to the coverages?
  • Then, how much coverage do I need for my personal property?
  • Lastly, how much liability coverage should I buy?

A. Engage professionals

Insurance companies generally use one of three methods to sell their products.

  1. Independent agents who represent several companies and can give you several quotes at once;
  2. Exclusive agents who only sell the products of one insurance company; and
  3. Direct market sales that are done over the Internet, by mail or by phone.

Make sure you take the time to look up any insurer’s or agent’s credentials to ensure they are duly noted registered and fully licensed.

B. Determining your premiums

A varying degree of components impact the underwriting process, which determines the premiums you pay. These include:

  • The amount of insurance coverage you buy will also affect your premium.
  • The cost to rebuild your home.
  • The proximity of your home to resources and services.
  • The age and condition of your home.
  • The claims history of your neighborhood.

5. How to save money

Here’s how to help drive down premium costs.

Choose a higher deductible

Having a higher deductible can be a good way to save money on your homeowners insurance premium.

Bundle your insurance

Many insurers will offer discounts for customers who are willing to keep their different kinds of insurance with the same carrier.

6. Policy upkeep

In the first place, the biggest reason cover may be dropped on an insurance policy is due to non-payment. Therefore pay your premiums on time. Furthermore make a detailed inventory of your possessions.

Homeowners insurance is more than just a piece of paper, it is an entity to be nurtured over time. The only way to go about it the right way is to read your policy thoroughly. Secondly, shop around for the right agent, with full knowledge of your coverage limits.

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