Understanding a Homeowner’s Insurance Policy

If you’re a first time homebuyer, you probably have a lot of questions regarding the homeowner’s insurance policy. You’ve never owned a house before, so you’re not quite sure if it’s worth paying extra for more coverage. Who knows if a large object will come plummeting from the sky and crash into your house, or if a major snowstorm will cause your roof to collapse? It’s all a game of risk, and we aren’t fortune-tellers.

But before you begin freaking out over HO1s and twos and all of the potential disastrous situations that may occur to you and your house, let’s take a look at the basics of what this type of insurance policy is, what you’ll be covered for, and anything else you may want to consider when taking out an insurance policy on your house.

What is it and is it necessary?
A homeowner’s insurance policy is designed to protect you and your home from perils. These include anything that might cause loss or destruction to your property, such as fire, theft, and falling objects. And there are three different types of home insurance policies, which are determined by the number of perils they cover:

  • Homeowners 1 (HO1): This policy protects your property against 11 basic perils.
  • Homeowners 2 (HO2): This policy protects your property against 18 perils, including the 11 perils from HO1.
  • Homeowners 3 (HO3): This policy protects your property against most known perils.

And it’s something everyone needs.

Homeowner’s insurance is something we should all have whether we rent or own,” said Michael Grodanz, an agent at Grisafi Insurance Agency. “You can insure your house, your condo, or if you’re a tenant renting you can purchase a renters policy.”

To determine how much coverage you need, Grodanz said to insure your house for what it would cost to replace. “An insurance agent will run a replacement cost estimate on your house, using your square footage, style of home, age, and interior details,” he added.

Although home insurance rates have been on the rise over the last few years, Grodanz said to make sure you are receiving all of your proper discounts. Additionally, be sure to tell your agent if you make major adjustments to your house. “We had a client who recently installed a new roof. When we notified the insurance company that the roof was brand new, it gave the client a discount on her policy.”

What does it cover?
Coverage can vary company to company, but no matter what type of policy you take out, it will be divided into two parts: Home Insurance Property Protection and Home Insurance Liability Protection.

As the name suggests, home insurance property protection protects your property, which the policy defines as: the dwelling (e.g. your house, attached structures, fixtures within the house), other structures (e.g. storage sheds, garages), and personal property (the contents in your home). Property coverage also includes “Loss of Use,” which means if you aren’t able to live in your home while repairs are made or you are denied access by government order, your living expenses will be taken care of.

Your policy may further provide Additional Property Coverages, such as the removal of debris from damaged trees.

Additionally, you have the option of adding endorsements to your policy for an additional cost. “Many of these coverages are very inexpensive and are worth discussing with your agent,” said Grodanz. “A very important one to have is water back up of sewer and drain, a.k.a. sump pump failure.”

The second part of your homeowner’s insurance policy provides personal liability coverage against a claim or lawsuit resulting from bodily injury or property damage to others. And it’s broken down into two parts: Personal liability and Medical payments.

Under the personal liability section, you will be covered against any lawsuits that result from bodily injury or property damage to others caused by an accident on your property. So, if your friend breaks her ankle in your garage, you won’t have to worry if they file a claim or lawsuit against you (some friend!). While this covers you and your family, it does not protect for auto and business related accidents.

Additionally, the policy includes coverage to pay medical expenses for any person (excluding you and your family members living with you) accidentally injured on your property, no matter whose fault it was. If your friend with the broken ankle wants you to pay for her medical bills, you will be able to do so through your insurance.

It’s important to note that there are restrictions and exclusions to the coverage outlined in your homeowner’s insurance policy. “Maintenance issues are a very common claim that can be denied, so you want to make sure you keep proper care of your home,” said Grodanz. Additionally, certain items within your house, such as firearms or artwork, may not be covered either. However, Grodanz advised homeowners to take pictures of each room and keep them in a safe off-site location. “You never know when you may have a large loss and need a memory jog on some of the items you own.” You may also want to consider purchasing additional coverage for personal items.

Who should you buy from?
When you’re ready to buy homeowner’s insurance, be sure to go with a local agent. Popular online insurance websites my be enticing, but working with a local agent will be more beneficial as you’ll be able to get help when you need it and meet face-to-face without a hassle—‘luxuries’ that don’t come with online insurance websites. Sometimes it’s good to know that a real person will be there to guide you and have your back.

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