Homeowners Insurance
Unlike car insurance, homeowners insurance is not required to be purchased by state law. However, if you have a mortgage or other type of loan on your home, the bank or lender will require you to purchase homeowners insurance. Banks and other lenders want to ensure that there are insurance funds available to pay them for their interest in your home should the home be destroyed by things such as a fire, a hurricane or some other disaster.
Even if you do not carry a mortgage or other loan on your home, it is highly recommended that you purchase homeowners insurance with limits equal to the full value of your home. If not and your home is destroyed, you will lose the entire value of your home. The exception would be if you have sufficient assets to self-insure any such loss. However, most Americans are not wealthy enough to self-insure their homes.
A homeowners insurance policy contains several different types of insurance coverage. There is coverage for the actual home, coverage for the contents of the home, liability insurance and a form of third party accident insurance called medical payments coverage.
Section I of the homeowners policy covers the home and your personal property (contents of the home). Most homeowners' policies today are called "all peril" which means they cover your home for loss by most causes. However, most homeowners policies still exclude damages resulting from floods and earthquakes. Many residents in Louisiana whose homes were destroyed by Hurricane Katrina were shocked and dismayed to discover their damages were not covered by their homeowners' policies. So it is important to read your insurance policy to determine exactly what is, and what is not covered.
This coverage generally has a deductible. Most homeowners deductibles range from $250 up to $2000. A deductible is the portion of the loss that the homeowner is responsible to pay. So if you have a $500 deductible and you sustain damage to your home that costs $2000, you are responsible for the first $500. The insurance company will then pay the additional $1500. The higher your deductible, the less your premiums will be. You should choose your deductible based on how much you can afford to pay at one time in the event of a claim.
Section II of the homeowners policy provides liability coverage. This coverage protects you from claims made against you for damages or injuries for which you may be responsible. This coverage extends to you while you are away from the home as well. If for example you are playing golf and golf ball that you hit strikes and injuries an individual, your homeowners insurance will generally provide coverage if the person you strike sues you for injuries.
Section II also provides Medical Payments coverage. This coverage pays the medical bills of anyone injured at your home, regardless of who is at fault. This coverage is generally limited to a small amount, such as $2500.
Next to car insurance, homeowners insurance is the most common type of insurance purchased by individuals. It is essential to have if you own a home. As always, consult with your insurance agent for advice.