Homeowner's Insurance: Homeowner's Insurance Basics
Homeowner's insurance, also called property insurance, protects you from
damages to your:
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Dwelling. A dwelling is the structure you live in.
For coverage purposes, dwelling also includes any attached garages or units. A
basic homeowner's insurance policy may also cover damage to detached
structures on your property such as a shed or swimming pool.
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Personal property. Personal property includes
furnishings and other belongings that you use, wear or collect. A basic policy
insures these items from theft or peril-related damages. However, jewelry and
other collectibles often require separate coverage.
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Liability. Liability coverage pays for accidents that
occur on your property for which you are held responsible. Liability includes a
neighbor being hurt on your property or someone tripping on your child's
bike left on the sidewalk.
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Living expenses. In case you have to live elsewhere
while your home is being repaired for a claim, a basic homeowner's
insurance policy is likely to cover additional living expenses that you incur.
Like any other type of insurance, you pay a premium to buy a homeowner's
insurance policy. An insurance company bases your premiums on:
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Claims in your area. An insurance company will look
at the history of claims in your neighborhood to estimate a premium. For
example, if your neighborhood has experienced a high rate of burglaries or
wildfires, you will likely pay a higher premium.
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Your claims history. If you are renewing a
homeowner's insurance policy and have made several claims, you should
expect to pay a higher premium. In extreme cases, insurance companies may
decide against renewing a policy.
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Value of your home. You can obtain policy coverage
for the replacement value of your home or its actual cash value. Replacement
cost coverage protects you from inflation in home-repair costs. Actual cash
value insures your home for its current value.
Actual cash value is likely to be lower than replacement-cost value for all but
the newest homes since homes depreciate over time from age and use. Mortgage
lenders generally require coverage for the replacement-cost value of your home.
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Deductible. A deductible is the amount you pay before
the insurer begins to pay your claim. By paying a higher deductible, you're
sharing the insurer's risk of paying a claim on your home. As a result, the
insurer is likely to offer a lower premium.
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Safety measures. Installing fire detection, sprinkler
and theft-deterrent systems can help you to lower your premiums. You can also
take steps to reduce the possibility of an accident occurring on your property.
Be sure to read your policy carefully to see what perils are covered and what
are excluded. Damage from storms, lightning, fire and smoke is generally
covered in a basic homeowner's insurance policy, but damage from
earthquakes or floods is generally excluded. These perils, along with hurricane
and tornado coverage, often need a separate policy or policy rider.
Together with auto insurance, homeowner's insurance constitute what is
called property & casualty insurance. P&C is distinct from life and
health insurance. Some insurers offer P&C insurance while others do not.
You may find that your current auto insurer is willing to issue you a
homeowner's insurance policy.
Like all insurance in the U.S., homeowner's insurance is regulated by state
insurance commissions. The umbrella organization is the National Association of
Insurance Commissioners (NAIC). The NAIC maintains a directory of state
insurance commissions at its Web site.
If you have any questions concerning policy coverage, exclusions or limits,
contact the insurance agent or company that sold you the policy or your
mortgage lender.
The following calculator lets you enter homeowner's insurance premiums, at
the bottom, to calculate how much you can afford to borrow to buy a home.