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.
Adjuster
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.
Appraisal
An assessment of a home insurance property claim by an adjuster, to determine property value.
Cancellation
The termination of a homeowners policy before its agreed-upon expiration date.
Claim
A homeowners appeal for compensation under the terms of the policy.
Deductible
The amount that a policyholder must pay out of their own pocket before coverage kicks in, even when a claim is accepted.
Depreciation
The approximated decline in value of property over time due to wear, tear, and aging.
Endorsement
A provision, document, or clause added to a homeowners policy that modifies the original coverage offered by the policy.
Exclusion
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.
Lapse
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.
Nonrenewal
The refusal by an insurance company to renew a policy at the end of its current term.
Peril
A specific risk or reason for a loss.
Personal property
Articles that are transferable and not permanently affixed to the home.
Policy
A written contract between an insurer and customer specifying coverage for loss or damage to property.
Premium
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.
Underwriting
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.