You will likely need to purchase homeowners insurance when you buy a home. Although you might not need it, homeowners insurance can provide financial support in the event of damage or destruction to your home.

What’s homeowners insurance?

Homeowners Insurance is coverage that you can purchase to protect your finances against certain types damage.

You pay a premium to get this coverage. The company will reimburse you for any damage to your home or belongings caused by a covered event such as a fire. If you injure or damage another person’s property, your homeowner’s insurance could provide financial assistance.

Homeowners Insurance has four main functions.

  • Repair your house, landscaping, or other structures.

  • Repair or replace personal property.

  • Allows you to move elsewhere while your home is being repaired.

  • Pay legal fees and penalties if you are found responsible for the injury or damage done to another person.

Do homeowners need insurance?

Although homeowners insurance is not required by law, a mortgage lender may require that you insure your home to protect the lender’s investment. Home insurance is a smart purchase, even if you don’t have a mortgage. A homeowners policy provides you with property and liability coverage. This is a financial safety net that you might be grateful for.

Homeowners Insurance vs. Mortgage insurance

You will need to purchase mortgage insurance if your down payment is less than 20%. Homeowners insurance does not include mortgage insurance. Mortgage insurance may be required for federal loans (Federal Housing Administration or FHA) and loans that are not backed by a down payment. Mortgage insurance will reimburse your lender if you default on your loan.

Homeowners insurance protects you and your lender from mortgage insurance.

What is home insurance coverage?

There are many fine print terms and conditions in a homeowners insurance policy. It is important to remember that homeowners insurance is intended to cover sudden, accidental damage and not for maintenance issues.

Imagine that you get up in the morning to find your water heater not working. Standard homeowners policies won’t cover the cost of a professional to repair your water heater. Your policy may cover the cost of repairing damage to your roof from a hailstorm.

Your policy will not cover sudden events. If you don’t buy additional coverage, homeowners insurance will not cover damage caused by flooding or earthquakes.

Homeowners insurance definitions

These definitions will help you understand your homeowners insurance policy.

Standard coverage types

These are the six major parts of a homeowner policy.

Loss of Use: Covers expenses such as meals, hotels, and other costs incurred while your home is being repaired.

Personal liability coverage: Covers your defense in a lawsuit against someone who sues for you injuring or damaging their property. This coverage can cover legal damages if you are found guilty by a court, as long as your policy limit is not exceeded.

Coverage for medical payments: Pays a small amount of medical bills if someone is hurt on your property, or your dog bites another person.

Other important terms

Claim: This is a request to your insurance company for payment according to your policy. You can file a claim by contacting your insurance company online or over the phone and explaining the extent of the damage. Depending on the coverage you have, your insurer will assess your claim and either pay or deny it.

Declarations page: This is typically the first page of your homeowners insurance. This page contains important information like your premium amount, your coverage limits, and the address of your home.

Deductible: This is the amount you are responsible for in a claim. If you file a claim, the insurance company will deduct this amount from your payment. Your homeowners insurance premium will drop the more you are willing to pay for damage.

An endorsement is an amendment to your homeowners policy that adds, modifies or removes a clause. To explain what you are covered, an endorsement will be added to your policy by your insurer if you have paid more for identity theft coverage.

Limit: This is the maximum amount your policy will cover for a particular type of claim. Different limits are available for different types of homeowner insurance. You may have a $300,000 coverage limit for the structure of your house and $150,000 for your personal belongings.