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What is Homeowners Insurance?
Purchasing a home is a big milestone for anyone, especially if it’s your first time doing so. That said, the next step is just as important: getting homeowners insurance.
Confused? Don’t worry, you’ve come to the right place.
What Is Home Insurance?
Homeowners insurance or Home Insurance is a type of insurance that offers a financial safety net that protects you from sudden and unexpected expenses due to home-related incidents.
This can include damaged home structures, assets you had in your home, and even personal liability in case something goes wrong within your property, among many others.
If you’re an up-and-coming homeowner, or you want to maximize a real estate investment by protecting it financially, then it’s absolutely crucial to have homeowners insurance.
What Does Homeowners Insurance Cover?
Homeowners insurance usually covers broad situations: interior and exterior damage, personal belonging loss or damage, and injuries or damages that occur in your property.
Our comprehensive home insurance plan offers more types of coverage to protect you and your home. In this section, we’re going to talk about all of them.
Just like any other insurance policy, liability coverage protects you against financial damage in incidents that you’re deemed liable for.
With auto insurance, for example, liability coverage protects you against the financial costs of accidents you may cause while driving. Similarly, when it comes to homeowners insurance, liability coverage covers incidents that happen on your property. It can even cover damages or injuries caused by a pet.
Every insurance company has what’s called a liability limit, which is typically around $100,000. That said, you can always choose to pay a higher limit for a corresponding increase in premiums.
This amount will go towards replacing, restoring, or repairing any damages that may fall on you, your property, or the structure of your house. It can also cover the costs of living in an alternative place while your home is being restored.s on your property for:
Interior and Exterior Damage Coverage
Your insurance company will have a list of ‘perils’ that your home and assets will be protected against. Usually, this includes hurricanes, fire, lightning, or even theft and vandalism.
However, some types of disasters may require separate coverages, such as earthquakes, floods, and wildfires. Damage or loss due to negligence can also result in denial of coverage.
Your health, the structure of your home, as well as any furniture, appliances, clothing, and other assets will be included under this umbrella. However special, expensive assets such as designer clothing, antiques, art pieces, or fine jewelry will need a separate type of coverage.
Fires are one of the most common reasons for injuries and damages in the home, so run-of-the-mill insurance companies will typically cover fire damage, provided that the cause of the fire is within your provider’s list of acceptable causes.
Your provider might also offer separate fire coverage for fire damages that go beyond the typical homeowner’s insurance limit. This will cover the repair of the fire damage, and even the additional living expenses while your house is being rebuilt.
Homeowners insurance will typically cover personal assets, even those that are separate from the house itself such as clothing, jewelry, and appliances. However, what happens if your car is broken into while it’s parked in your garage or driveway? Will it be covered by your car insurance or your homeowners?
While most homeowners insurance won’t cover the cost of the car itself, there are specific coverages that include assets that were in your car when it was stolen on your property. The bad news is that the limit is typically much lower, especially if the stolen items are used for driving, or can only be used in the vehicle. On the upside, you can depend on your car insurance policy for those items.
Natural Disaster Coverage
While a typical homeowners insurance policy will cover a large range of natural disasters, it won’t cover all of them. The most common disasters that are included in most policies are thunderstorms, hurricanes, lightning, and hail. Fire and smoke damages caused by natural disasters are also commonly covered.
However, disasters like earthquakes and landslides are typically not covered by common homeowners insurance. If you live in an area prone to those disasters, you might want to look into a separate kind of coverage for those disasters. The same goes for natural floods and wildfires.
This type of insurance typically covers flood damage if the cause is a problem in your home, such as an overflowing toilet or a burst pipe. However external causes such as storms, rising rivers, damaged dams, and the like are usually not included. There are insurance policies for those, but they are separate from the main policy.
Damage due to vandalism is usually included in your homeowner’s insurance. However, there can be differences in application depending on the status of your home.
Vandalism coverage applies normally to unoccupied homes but has a certain time limit for vacant homes. Unoccupied homes are houses with an absent owner, although their personal property is still present. Meanwhile, a vacant home is one in which the owners’ assets have been moved out, such as in the case of you selling your home.
Levels of Homeowners Insurance Coverage
There are several levels of protection in a homeowners insurance coverage corresponding to the premiums you pay – with the least coverage offered at the cheapest price and the more comprehensive ones at the most expensive price.
These are usually categorized as HO-1 to HO-8, offering several mixes of coverage. Generally, you only need to familiarize yourself with three levels.
Actual cash value
A coverage at this level will only pay the current market value of your property or assets – not the amount you paid for. For example, if you bought your house at $50,000 but its current market value is at $39,000, you will only be insured for $39,000.
Contrary to the actual cash value coverage, this level covers the original market value of your property or assets. Going back to the example, if your home was worth $50,000 when you bought it, that’s what you will be insured for.
Guaranteed or extended replacement cost
This level of coverage insures you for whatever the replacement or repair cost of your home is, even if it’s above your policy limit.
That said, most insurers do have a limit, typically up to 20% to 25% than the normal limit. Whenever possible, advisors recommend homeowners to get this type of coverage because of a fluctuating real-estate market that can easily devalue your home.
Is Homeowners Insurance Required?
Unlike with car insurance, there’s no legal requirement for homeowners to avail a home insurance policy for every house purchase.
However, lenders will typically require you to have one if you’re planning to take out a mortgage on a home. After all, it’s in their best interest that the home is financially insured in case of unfortunate incidents, such as natural disasters.
If you don’t have a mortgage to pay, then you’re technically not required to have homeowners insurance – although it’s still a good idea to have one. For many of us, our home is a valuable financial asset. Securing it against as many eventualities as we can is the most sensible decision in the long run.
Getting Homeowners Insurance with Magnum Insurance
Your home is likely one of the most valuable assets that you will own in your portfolio, so it’s important that you protect it at all costs. More than that, home insurance will also do wonders for your security and peace of mind, allowing you to enjoy the experience instead of dreading whatever accident may come your way.
Although on the surface, homeowners insurance may be quite simple, it can be a complicated subject. When shopping for one, just remember what kind of coverages you want and what level of protection you want to have.
However, for the best experience, we recommend looking for a professional insurance agency that will do all the hard work for you, just like us here at Magnum Insurance.
How Much Is Homeowners Insurance?
The national average rate for homeowners insurance in the United States is roughly $1,585, with rates varying significantly depending on the state.
The states with the cheapest annual rates include Hawaii ($468), Delaware ($686), Vermont ($716), New Hampshire ($744), and Utah ($780). The most expensive ones are Oklahoma ($3,426), Nebraska ($3,118), Texas ($3,007), Kansas ($2,674), and Louisiana ($2,527). Meanwhile, states like Illinois ($1,481) and Minnesota ($1,570) have annual rates closer to the national average.
However, regardless of where you live, it’s still possible to land on an affordable insurance policy that fits your needs. All you need is proper research and a little legwork.
This is where Magnum Insurance comes in – by finding you the best insurance rates for your specific situation.
With Magnum Insurance, buying a home is what it should be: a milestone worth celebrating, not a complicated insurance headache.
Buying a home can be a big, intimidating step to undertake, especially if it’s your first time. After all, for most of us, our home is arguably one of the most valuable financial assets that we will have in our life. Nobody wants to make a mess of their first home – and their finances.
In this article, Magnum Insurance will help you demystify the home buying process. From before you even make an offer to after you complete the purchase, this short guide will tell you the basics of buying a home.
Three Stages of Buying a Home
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