Understanding Homeowners Insurance: A Comprehensive Guide

Are you eager to help safeguard your biggest investment—your home—against risk? Homeowners insurance can help by protecting your home and belongings in the event of loss or damage. If a covered event occurs, such as a fire or burglary, you can file a home insurance claim and receive payment to help cover the losses. Here’s what you should know about how homeowners insurance works.

What Is Homeowners Insurance?

Home insurance provides financial protection against damage to your home and its contents. The payout from homeowners insurance can enable you to repair or rebuild your home and replace damaged or stolen possessions. Most home insurance also covers legal and medical expenses if visitors are injured on your property or a family member injures someone or damages property outside your home. Finally, homeowners insurance typically helps pay your living expenses if your home is uninhabitable during repairs for a covered loss.

What Does Homeowners Insurance Cover?

The most common type of home insurance is an HO-3 policy, which includes four types of coverage:

Home Structure Coverage

This coverage pays to repair or rebuild your home if it’s damaged or destroyed by fire, smoke, wind, hail, lightning, theft, vandalism, and certain types of water damage. Other structures on your property, such as a detached garage, gazebo, or shed, are usually covered, too.

Personal Possessions Coverage

This coverage pays to replace belongings such as furniture, appliances, clothing, and electronics if they’re damaged, destroyed, or stolen, either in your home or outside, such as in a storage space. Depending on your policy, insurance may pay to replace your possessions with similar new items or may pay out only their current cash value.

Liability Coverage

This coverage pays medical expenses if a visitor to your home is injured, such as a repair person tripping and falling down the stairs. It also covers legal costs arising from the incident. Outside your property, liability insurance covers injury your family members cause to other people or their property, such as your child throwing a football through a neighbor’s window.

Additional Living Expenses (ALE) Coverage

This coverage pays some costs of living somewhere else while your home is being repaired or rebuilt after a covered loss. For instance, if you have to live in a hotel that costs more than your mortgage, ALE insurance covers the extra expense.

What Is Not Covered by Homeowners Insurance?

Standard home insurance won’t cover every hazard that might befall your home. Here’s what homeowners insurance doesn’t cover:

• Damage due to floods, earthquakes, sinkholes, or landslides: You’ll need to buy separate insurance policies to protect against these risks.
• Damage from sewer, septic tank, or drain backups or sump pump failures: You may be able to add endorsements or riders to your policy to get this coverage for an extra cost.
• Routine wear and tear to your home: Home insurance won’t pay to upgrade your old electrical system or replace a worn-out washing machine. Purchasing a home warranty may provide coverage for some of these issues.
• Losses above policy limits: Most home insurance policies set limits on liability for certain belongings, such as furs, jewelry, or computers. These limits are often lower than the item’s full value. However, you can generally pay to raise the liability limits or purchase an endorsement to protect specific valuables.
• Losses due to unusual events: Damage or destruction caused by war, government seizure, pollution, infestation, or your intentional actions isn’t covered by home insurance.

Is Homeowners Insurance Required?

Homeowner’s insurance isn’t required by law. However, as a condition of approving your mortgage application, lenders generally require carrying at least enough home insurance to pay off the loan. By ensuring you have the money to repair or rebuild after a covered incident, home insurance protects the asset that secures the loan—your home. Home insurance is so important to lenders that they’ll monitor whether you are paying your insurance premiums or, in some cases, roll your premium payments into your mortgage payments.

How to File a Homeowners Insurance Claim

When filing a home insurance claim, you can help speed the process by following these steps:

1. Call the police if a burglary, vandalism, or other crime occurred. The insurance company will need a police report to support your claim.
2. Contact the insurance carrier. In most cases, you can either call the company or start a claim online. Once your claim is filed, you’ll be assigned a claim number and a claims adjuster. The claims adjuster will guide you through the process and visit your property to assess the damage.
3. Document the loss. Resist the urge to clean up until you’ve photographed and taken videos of any damage. Make a list of items that were lost, stolen, or damaged. (Having a home inventory can make this task easier.) Hold onto damaged property until the claims adjuster says you can discard it.
4. Make urgent repairs. If you need to act immediately to prevent further damage, such as boarding up a broken window after a burglary, go ahead. Just be sure to document these stopgap repairs with photos and keep receipts for any repair materials you buy or work you pay to have done.
5. Get estimates. Gather quotes for repairing or rebuilding your home from several licensed contractors. This information can help the insurance company determine the cost.
6. Receive your payout, minus your deductible. The insurance company may pay for your loss in one of several ways:
   • You might receive a check for the full amount that you can use to pay for repairs or replacing your possessions.
   • You might get partial payment now and the rest later.
   • If you have a mortgage, your lender may receive the payment and may want to approve contractors or repairs before paying for them.
   • If your belongings are insured for full replacement value, you’ll typically get a check for their cash value. After purchasing replacements and providing receipts to the insurance company, you’ll be reimbursed for the full cost.

FAQ

How Do You Pay Homeowners Insurance Premiums?

Many homeowners pay their homeowners insurance premiums, along with property taxes and other premiums, as part of their mortgage payment.

Homeowners Insurance vs. Home Warranty: What’s the Difference?

Homeowners insurance covers damage to your home and belongings from covered events, while a home warranty covers repairs and replacements of home systems and appliances due to normal wear and tear.

Homeowners Insurance vs. Mortgage Insurance: How Do They Compare?

Homeowners insurance protects your home and belongings, while mortgage insurance protects the lender if you default on your mortgage.

The Bottom Line

Hurricanes, wildfires, and windstorms are out of your control, but purchasing homeowners insurance can provide peace of mind should disaster strike your home. To save on home insurance, shop around, compare prices, and look for discounts.

Since home insurance companies may evaluate your credit-based insurance score when setting premiums, maintaining good credit can be another way to save. Credit-based insurance scores differ from regular credit scores but are based on similar factors. The same steps that can help improve your credit score—paying bills on time, paying down debt, and minimizing credit utilization—can also boost your credit-based insurance score and potentially lower your premiums.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you with all your mortgage needs and ensure you get the best possible service.

Learn More About Homeowners Insurance Coverage

Is Hazard Insurance the Same as Homeowners Insurance?

Your lender requested that you have hazard insurance by the time your real estate transaction closes. Is getting homeowners insurance the same thing?

Does Homeowners Insurance Cover Mold?

Whether home insurance covers mold depends on whether what caused it is covered by insurance. If insurance doesn’t cover the cause, it won’t cover the mold.

Does Homeowners Insurance Cover Plumbing?

Homeowners insurance pays to repair damage caused by covered plumbing problems, but it typically won’t pay to repair the plumbing itself.

Does Homeowners Insurance Cover Water Damage?

Most homeowners insurance covers water damage from winter storms, such as burst pipes, but there is some water damage that home insurance won’t cover.

Is Homeowners Insurance Included in My Mortgage?

Many homeowners pay their homeowners insurance premiums, along with property taxes and other premiums, as part of their mortgage payment.

What Is Not Covered by Homeowners Insurance?

Homeowners insurance usually doesn’t cover damage from earthquakes, floods, landslides, sinkholes, wear and tear, vermin, or some types of water backups.

What Does Homeowners Liability Insurance Cover?

What happens when a visitor is injured on your property? Homeowner liability insurance can help cover the cost and protect your assets. Here’s how.

Do Older Homes Need Special Homeowners Insurance?

Older homes may require special homeowners insurance and cost more to insure than new ones. Find out how to save money insuring an older home.

Does Homeowners Insurance Cover Renovations?

Before starting a home remodeling project, make sure your homeowners insurance will cover you adequately, both during and after the renovations.

Homeowners Insurance Extras to Consider

How well does your homeowners insurance really protect you? Without these home insurance extras, your coverage could fall short of what you need.

Does Home Insurance Cover Damage to Vacation Rentals or Hotels?

If you accidentally damage a vacation rental or hotel room, will your home insurance or renters insurance cover it? Find out if your policy protects you.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you with all your mortgage needs and ensure you get the best possible service.