Whether you’re buying your first home or shopping around for a new policy, it helps to understand the basics of homeowner’s insurance. No two policies or companies are the same, so take your time reviewing the types of hazard homeowner’s insurance they offer as you make your decision.
There are several different types of homeowner’s insurance policies. The most basic (and least common) is a HO1 policy that covers several specific events. HO3 policies are the most common policies issued in the United States. These policies provide protection for any damage to the property as long as it’s not caused by excluded events. There are also policies specifically designed for condos (HO6 homeowner’s insurance) and mobile homes (HO7).
A standard homeowner’s insurance policy covers damage caused by events like fire, wind damage, lightning, theft or vandalism and personal belongings inside the house. It also includes liability coverage that protects you if someone sustains an injury on your property and sues you. Most policies have a loss-of-use provision. This pays for expenses you incur if you have to move out while your property is repaired.
What’s Not Covered?
No homeowner’s insurance covers every possible type of damage that can occur on your property, and most policies list specific exclusions. For example, few policies cover flood damage. If your property floods during a storm or a water pipe bursts, you have to pay for the repairs out of pocket unless you purchase a separate flood insurance policy. Other excluded damages include those caused by earthquakes, neglect and normal wear and tear. The policy may also exclude luxury items like fine jewelry and artwork.
How Much Does Homeowners Insurance Cost?
Several factors affect the cost of homeowner’s insurance. The most important is the coverage you select. In general, policies that cover more types of damage cost more than policies that don’t cover as many circumstances. Location also affects the cost of your insurance. For example, you tend to pay more for homeowner’s insurance if you live near the coast instead of inland. Your deductible also affects the premium. Choosing a higher deductible lowers your premium.
How Do You Pay the Premium?
In most cases, you pay your homeowner’s insurance premium annually. If you have a mortgage on the house, the mortgage company will likely collect money from you each month to keep in an escrow account. When it’s time to pay the insurance premium, it will pay it for you.
What Happens If You Don’t Have Insurance?
If you don’t have homeowner’s insurance, you must pay to repair or replace your damaged property. People who opt out of an insurance policy typically understand this. You may be surprised, though, to learn that your policy doesn’t cover specific events, like flood damage caused by a leaking pipe. If you live in a state prone to hurricanes, you may also have a separate hurricane deductible that’s higher than your standard deductible.