What Does it Cover?
Homeowners’ insurance is something that you will be required by your lender to purchase before you can close on your home. You may be wondering exactly what homeowners insurance is for and why your lender requires it. Homeowners insurance is entirely different and separate from title insurance (which is also required by your lender…sort of). Title insurance covers any financial loss that might be incurred if there is a dispute about the ownership of the title (an undisclosed heir of a previous owner, etc.) and comes in two flavors: lenders and owners. Homeowners insurance is different and has nothing really to do with the title of the home at all.
Homeowners Insurance Protects the Property
The reason lenders require you to purchase homeowners insurance before closing on the loan is because they want to make sure their financial stake in the property is protected. Even after you have fully paid off your home, though, you should maintain a homeowners insurance policy because it gives you important protections in case of a tragedy, and it’s usually fairly reasonably-priced. Just like driving without insurance is a bad idea, owning a home without it is asking for trouble. Having it gives you peace of mind, and you’ll be extremely thankful you did if something were to happen to your home. There are some things that homeowners insurance covers, and some things that it usually does not. Granted, not all homeowners insurance policies are created equal, but you can work out what you want and need with your insurance agent.
Homeowners insurance usually comes with a basic bundle of protections, separated by what they each specifically cover.
The first is dwelling coverage, which covers all the expenses of either repairing or rebuilding your home, including all the guts such as plumbing, HVAC, and wiring. By default, your total homeowners insurance policy will usually be the fair market value of the property, but you can purchase more of a specific portion of the property if you think it will be more expensive to rebuild the home than the home is worth. Homeowners insurance usually also covers other structures on the property such as a detached garage, shed, or fence, as well as personal property coverage that covers your personal items in your home. What may be surprising to you is that homeowners insurance often also covers your additional housing expenses if you have to move out of your home temporarily while it’s being restored and even liability insurance for you and your family members in case you cause injuries or damage to other people or their property.
What Homeowners Insurance Does Not Cover
With all the things that homeowners insurance covers, there are a few odd exclusions. While most natural disasters and threats are covered such as fire, hail, lightning, and windstorms, floods and earthquakes are usually not covered by a normal homeowners insurance policy. You have to get specific flood or earthquake insurance if you want (or need) coverage for those things. Your lender may require you to purchase either flood or earthquake insurance if you are in an area where the chance of those happening is fairly high. For the most part, however, homeowners insurance covers everything you would think that it would, and even a few things that you wouldn’t necessarily predict.
It’s a Good Thing To Have
If you’re getting a loan to purchase your property, you won’t really have much of a choice, but even after you’ve paid off your home, it’s definitely a smart move to keep your homeowners insurance policy going. You’ll have to pay an annual premium, but it’s something you will really wish you had if something goes wrong and you chose not to keep it open. In some areas, it may also be a legal requirement, much like automotive insurance. If you have additional questions about homeowners insurance, talk with your agent about it. If you don’t have an insurance agent that you already work with for other insurance, ask your real estate agent or the loan officer you’re working with and see if they know any agents that they would recommend.