Homeowners insurance is a form of property insurance that covers losses and damages to an individual's house and to assets in the home. Homeowners insurance also provides liability coverage against accidents in the home or on the property.

1. Homeowners Insurance
source: investopedia.com
I N S U R A N C E

2. What is Homeowners Insurance
Homeowners insurance is a form of property insurance that covers
losses and damages to an individual's house and to assets in the
home. Homeowners insurance also provides liability coverage
against accidents in the home or on the property.
BREAKING DOWN Homeowners Insurance
When a mortgage is requested on a home, the homeowner is
required to provide proof of insurance on the property before the
lending bank can issue him or her a mortgage. The property
insurance can be acquired separately or by the lending bank.
Homeowners who prefer to get their own insurance policy can
compare multiple offers and pick the plan that works best for
their needs. If the homeowner does not have their property
covered from loss or damages, the bank may obtain one for them
at an extra cost. Payments made toward a homeowners insurance
policy are usually included in the monthly payments of the
homeowner’s mortgage. The lending bank that receives the
payment allocates the portion for insurance coverage to an
escrow account. Once the insurance bill comes due, the amount
owed is settled from this escrow account.

3. A homeowners insurance policy usually covers four incidents on the insured property –
interior damage, exterior damage, loss or damage of personal assets/belongings, and
injury that arises while on the property. When a claim is made on any of these incidents,
the homeowner will be required to pay a deductible, which in effect is the out-of-pocket
costs for the insured. For example, a claim is made to an insurer on an interior water
damage that occurred in a home. The cost to bring the property back to livable
conditions is estimated by a claims adjuster to be $10,000. If the claim is approved, the
homeowner is informed of the amount of his or her deductible, say $4,000, according to
the policy agreement entered into. The insurance company will issue a payment of the
excess cost, in this case $6,000. The higher the deductible on an insurance contract, the
lower the monthly or annual premium on a homeowners insurance policy.

4. Every homeowners insurance policy has a liability limit, which determines the amount of
coverage that the insured has should an unfortunate incident occur. The standard limits are
usually set at $100,000, but the policyholder can opt for a higher limit. In the event that a
claim is made, the liability limit stipulates the percentage of the coverage amount that would
go toward replacing or repairing damage to the property structures, personal belongings,
and costs to live somewhere else while the property is worked on.
Acts of war or acts of God such as earthquakes or floods are typically excluded from
standard homeowners insurance policies. A homeowner who lives in an area prone to these
natural disasters may need to get special coverage to insure his or her property from floods
or earthquakes. However, most basic homeowners insurance policies cover events like
hurricanes and tornadoes.

5. Homeowners insurance policy is different from a home warranty.
A home warranty is a contract taken out that provides for repairs
or replacements of home systems and appliances such as ovens,
water heaters, washers/dryers, and pools. These contracts usually
expire after a certain time period, usually 12 months, and are not
mandatory to have in order to be issued a mortgage. While
homeowners insurance does not cover damages that result from
poor maintenance or inevitable wear and tear, home warranty
covers such issues.
A homeowners insurance policy also differs from mortgage
insurance, which is typically taken on home buyers making a down
payment of less than 20% of the cost of the property. Mortgage
insurance covers the lender for issuing a loan to a home buyer
who otherwise might not be able to get the loan required.
Basically, a homeowners insurance protects the homeowner and a
mortgage insurance protects the lender.
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