Proper home insurance provides financial protection for any homeowner.
Comprehensive insurance provides protection for the structure of your home, the contents within it, and the liability risks of owning a home.
Every property owner faces these risks. While insurance needs to be specific to the property's actual features and value, without it, the homeowner could see the home lost and face financial ruin as a result of a claim or lawsuit.
Home Insurance Requirements
There is no legal requirement to maintain home insurance. However, most mortgage lenders place home insurance requirements in the contracts for any home loan. Not carrying this insurance can lead to the lender taking possession of the home, foreclosing on it, or forcing the purchase of it. Even if a home is owned outright, the value of home insurance generally pays for itself after a single claim.
What Is Property, Comprehensive Coverage?
There are various components to a home insurance policy. Each one provides specific protections for the homeowner based on a set of perils, or risks.
Here's a look at the most common types of coverages included in these plans:
1. Structural Coverage
Structure insurance provides protection for the actual structure of the home, and often attached or on-property garages or other buildings.
This includes protection from losses such as fires, theft, vandalism, and storm damage. For example, if a storm occurs and lightning strikes the home causing it to catch on fire, the insurer may help cover the costs to rebuild (depending on the type of insurance policy in hand). The insurance policy may also cover the cost of living at another location while repairs are being made.
Structural insurance does have limitations. It's limited by the amount of coverage in place. Also, some types of perils are not covered. Floods and earthquakes, for example, are a common exclusions.
2. Contents Coverage
Most standard home insurance policies offer 10 percent of the value of the total coverage on a policy as contents coverage.
This is the amount paid to replace the items normally stored within the home if they're lost due to a covered peril. For example, if someone breaks into the home and steals a computer, the insurance policy covers that item up to the per item limit on the policy.
Contents coverage can also protect high-end valuables, such as jewelry, art, collector's items, and similar belongings if they are specifically listed on an asset you own.
3. Liability Insurance
Liability insurance is critical as it protects the homeowner from claims of negligence made against him or her. This is often necessary because anyone can file a claim against a property owner if someone falls and is hurt on the property, or slips on ice on the sidewalk.
It can also cover other risks, such as a dog biting someone visiting the home. Liability insurance often includes coverage for legal defense as well as the settlement or payment given for the claim.
What's the Risk of Going Without Home Insurance?
Without home insurance, property owners are financially responsible for these losses out-of-pocket. A significant storm, a fire, or a theft can leave the property owner without a way of replacing their items or repairing their home.
A single negligence claim from someone who falls on the property could amount to thousands of dollars paid for medical bills, lost time at work, and pain and suffering (in some cases). All of this may be avoided if the property owner maintains proper home insurance coverage.
Most insurers will customize the policy for the homeowner to meet specific needs based on the property's value, the type of contents within it, and whether or not it will cover rebuilding the home in a total loss situation.
Policies list all exclusions, providing clear information about when the policy may not apply. Without this type of financial protection, anyone could suffer significant loss if an accident or incident occurred.
About the Author
Kris Lindahl is a Minnesota native and owner of The Kris Lindahl Team with RE/MAX Results. RealEstate.com calls him the head of a “technology-based real estate powerhouse in the Twin Cities.” Real Trends and Trulia named him among the “Best Real Estate Agents in America.”