Homeowner’s insurance is the insurance policy that protects your home, your personal belongings and your family from too. It provides protection from the damages caused due to natural calamities, vandalism, theft, burglary and other things that could damage the property or harm the members of the household. It is also commonly referred to as home insurance.
What a homeowner’s policy provides?
A homeowner’s policy provides you with the following benefits and coverage:
- Damage to the house – This includes damage to the interiors as well as the exterior of the house due to fire, lightning and acts of vandalism. However, natural disasters like earthquakes and floods are not covered in the basic packages. You have to include them by paying an extra premium.
- Damage to possessions – This type of Home Insurance also protects and covers the damages caused to your personal belongings (contents of your house). TV, fridge, wardrobe, furniture, etc. often get destroyed in the fire, burglary or any other such event.
- Personal liability and damage – Homeowner’s insurance covers personal liability and damage as well. It covers your pet as well. Therefore, if you or anyone from your family cause damage to another person’s house then the policy will pay for the loss. Suppose, if your dog bites a guest in your house, on filing a claim the insurance provider will pay the bills.
- House or hotel rentals – If your home is being repaired or remodelled, then the insurance provider will reimburse you the amount you have paid for during your stay. If you stayed at any hotel or took a house on rent, the policy will pay for it.
Different types of coverage explained
- Actual cash value – This is the coverage that takes into account the depreciation of your house and your personal belongings. In other words, this coverage calculates the value of the items listed in your policy. It is calculated at the particular point of time and not what you had originally paid for them.
- Replacement cost – Replacement cost is the type of coverage that does not take depreciation into account at all. It is similar to actual cash value other than the fact that this coverage estimates the worth of the goods damaged or covered at the current prices.
- Guaranteed replacement value – It is also known as extended replacement cost or guaranteed replacement cost. Most of the advisors suggest that homeowners should opt for this kind of policy, particularly if the homeowners plan on staying there for an extended period of time. The buffer inflation policy pays whatever you need to rebuild your home. Sometimes, it is more than the coverage as well. However, there is a cap to the limit and that is 20% -25% above the coverage limit.
What isn’t covered?
While homeowner’s insurance covers most of the damages caused to your house, family or personal belongings, it does not cover acts of God or acts of war. For instance, a person living in an earthquake-prone zone will not get earthquake coverage unless he opts for a customized coverage policy. Homeowner’s insurance also does not cover damages of war, floods and other such naturally occurring phenomena. To cover these damages, one needs extra riders.
Cost-cutting insurance tips
- Increased deductible – Higher the deductible, lower the annual premiums. However, more deductible means less coverage. If your property gets damaged, you have to pay out of your own pocket if the coverage doesn’t suffice.
- Security systems – Another thing to do is to install an effective security system so as to prevent theft and burglary. You need to ensure that your security system is wired directly to your nearest police station as well.
- Checking options – Different companies might be offering different prices for the same policy. Hence, if you don’t want to pay more, then check the options available to your before you make a purchase.
- Multiple-policy discounts – A lot of companies offer discounts to customers who have availed other policies from them. Make sure you ask your insurer about the discount that is available to you.
How is the insured amount and premium calculated?
Property insurance or homeowner’s insurance calculates premiums and the insurance amount on the basis of three factors mostly:
1) Location of the house or the property
2) Area of the property or space it spans over
3) The total rate of construction on the basis of per square feet area.
The basic logic behind the varying amounts of insurance and premiums is similar to that of purchasing a property. For example, purchasing a property in the heart of a metropolitan city will cost you more (higher insurance sum) while the same house, if constructed in the outskirts of the same city will cost you a lot less (lower insurance sum).