What Is Homeowners Insurance? How Does It Work?

• 5 March 2021
• Local News
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Homeowners insurance is a form of property insurance that covers losses and damages to an individual’s house as well as other assets within. It also provides liability coverage against accidents in the home or on the property, according to Investopedia.

A homeowner’s insurance policy in most of the case covers four kinds of incidents on the insured property including interior damage, exterior damage, loss or damage of personal belongings, and injury that occurs while on the property.

A standard home insurance policy covers your home and personal property against fire and smoke damage. However, natural disasters such as earthquakes or floods are generally not included in the coverage, except if the homeowner has a special coverage package. However, it also varies depending on the policy of each insurance company and the context in each country.

Every homeowner’s insurance policy has a liability limit (which determines the amount of coverage), and also the deductible amount (which determines the amount you have to pay out of your pocket). Therefore, the homeowner should study these two matters carefully.

Why Homeowners Insurance Is Required for Mortgages?

Homeowners insurance is a requirement when you apply for a mortgage to buy a house. The property insurance can be acquired separately or by the lending bank. This is to ensure that if something goes wrong with the property, the lender (bank) will not lose all their money, since most of the damage will be covered by the insurance company.

Homeowners Insurance vs. Home Warranty

Most people tend to mix up between home insurance and a home warranty. A warranty is basically a contract that the real estate developer will cover for any damages to the house structure for a period of time. However, home insurance is the coverage of your home when the aforementioned accidents happen. The period of coverage depends on the premium payment.

Homeowners Insurance vs. Mortgage Insurance

A home insurance policy is also different from mortgage insurance. Mortgage insurance is generally required by the bank for homebuyers who makes a down payment of less than 20% of the property price. This is to ensure that if the buyer default on payments, the mortgage insurance would compensate the bank. While home insurance again is the protection to your home, which benefits both you and your lender (bank).

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