When you buy your first home, you might be surprised to hear about all of the extra costs that are associated with your large purchase. Not only will there be closing costs, but you will also have to purchase a homeowner’s insurance policy. In the majority of cases, homeowner’s insurance is not an optional extra; whether it is stipulated by your state’s laws, or by your mortgage lender, taking out a policy is usually a must for anyone purchasing a new home.
This is one of the ways that the mortgage lenders protect not only themselves but also you from any damage that should occur to the home. If there is a natural disaster or some other event that causes damage or loss of property, then the mortgage company and the homeowners are both protected in terms of their investment.
Whether it’s required or not, it’s smart to have this level of protection for yourself, your home and your belongings. Ensuring that you have room in your budget to take out a policy is yet another way of ensuring that your first home purchase is successful both now, and in the future. We’ll walk you through the basics of homeowner’s insurance policies.
What It Covers
The policies for homeowner’s insurance are fairly standard in regard to what they cover – the difference lies in the insurance broker’s efficiency and affordability. Although there are certainly options to add on different types of coverage, the most basic plans through different companies will typically cover the same three factors.
- Damage
If your home sustains damage on the exterior or interior of the house for various reasons, your insurance policy will help you to get the money that you need in order to repair or rebuild the home.
In general, insurance policies cover damage from hurricanes, tornadoes, thunderstorms, vandalisms and even more. Among the most common stand fire and lightning, and bodily injury, as shown in this graph from Triple-I:
Graph Source: https://www.iii.org/fact-statistic/facts-statistics-homeowners-and-renters-insurance
Typically not covered underneath your homeowner’s insurance policy is damage caused by a flood, earthquake, or your inability to keep up with your home maintenance. If you are concerned that any of these issues might arise, then there are additional riders that you can choose to have added to your policy in order to cover you in these events. Further, you will also need to discuss any freestanding structures on your property.
Your personal property is also covered in the event that there is a covered disaster. Your insurance adjuster will work with you to determine the estimated value of the property lost during the event.
- Liability
Liability insurance is an important type of coverage as it protects you from being sued by other people. In fact, it even covers you in the event that your pet is involved in the injury of another person. In the event that someone is harmed on your property or by one of your pets, then your personal liability insurance will cover the medical expenses that might result from a dog bite.
- Displacement
In the event that you lose your home or have to evacuate your home while repairs or rebuilding take place, short-term arrangements can end up costing a pretty penny. If you have to live in an expensive rental home or an even more expensive hotel for any length of time, the expenses can quickly add up beyond your ability to pay.
In this event, your homeowner’s insurance will pay any living expenses that are associated with the short-term living arrangements. This is an excellent way to ensure that you do not wind up with a bill that you cannot pay during an already difficult time.
Final Thoughts
Having homeowner’s insurance may seem like just another extra expense, but it is well worth the small financial outlay if you ever have reason to file a claim. What’s more, you could opt to combine two expenses for a better household budget, such as your homeowner and pet insurance policies.
You will certainly be glad that you made the extra investment if the time comes when you have to file a claim. In fact, just seeing the bills that you could have been stuck with can help you realize just how important it can be to keep your homeowner’s insurance policy up to date.
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