When I prepared for the CERTIFIED FINANCIAL PLANNER® exam, I delved deeply into the nuances of why do I need homeowners’ insurance—its more than I ever imagined! While it may not have been the most exciting study topic, the knowledge I gained can help you make informed decisions about protecting your home.
Why You Need Homeowner’s Insurance
If you own a home, homeowner’s insurance is essential—and often required by mortgage lenders. It provides coverage for damage to your home and property, and offers liability protection in case someone is injured on your property. For example, if a storm causes a tree to fall on your home and the repair estimate is $15,000, your homeowner’s insurance would typically cover the costs.
What Does Homeowner’s Insurance Cover?
A basic homeowner’s policy covers a variety of risks, known as “perils,” including:
- Fire
- Hail
- Lightning
- Windstorms (hurricanes, tornadoes)
- Theft
- Vandalism
- Explosions
- Damage caused by vehicles or aircraft
- Riots and civil commotion
- Volcanic eruptions
However, standard policies generally do not cover certain “Acts of God,” such as:
- Flooding
- Earthquakes
- Hurricanes
If you live in an area prone to these risks, many times additional coverage is available for an additional cost but not always.
Types of Homeowner’s Insurance Coverage
-
Basic Form: Covers the most common perils, as listed above.
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Broad Form: Includes everything in the basic form, plus additional coverage for:
- Falling objects
- Weight of ice, snow, or sleet
- Freezing of household systems (heating, air conditioning)
- Electrical surges
- Special Form (most common): Provides the broadest coverage. It covers everything under basic and broad policies, plus any other risks not explicitly excluded. This type of policy also covers attached structures like garages or decks. For detached structures (like sheds), additional coverage may be necessary.
Personal Property and Additional Coverage
Homeowner’s insurance also covers personal belongings inside your home. If you own high-value items (e.g., expensive jewelry), you may need to purchase a rider to ensure full coverage beyond the standard policy limits.
Many policies also offer “additional living expenses” or “loss of use” coverage, which helps cover hotel, food, and other costs if you are temporarily displaced while your home is being repaired.
Bundling and Discounts
To save money, consider bundling your home and auto (or renter’s and auto) insurance policies for a discount. Shopping around and comparing rates can also help you find the best deal.
TLDR Summary
Homeowner’s insurance protects your home, personal property, and offers liability coverage if someone is injured on your property. Renter’s insurance does the same for apartment dwellers. Adequate coverage is essential to safeguard your assets and avoid unexpected financial losses.
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