homeowners insuranceHomeowners Insurance protects your most valuable material investment – your home. If your home is damaged or destroyed, homeowners insurance will cover it and you. It would be great if someone could guarantee that your home would never by struck by disaster, but that kind of guarantee just doesn’t exist. Homeowners offers you the next-best thing when it comes to peace of mind. Your lender will oblige you to buy a homeowners policy, and you’ll need to bring evidence of the policy to the closing.

Homeowners insurance has two primary components:

  • Hazard insurance covers physical damage to your property, such as from wind or fire. It also covers your personal possessions if, for example, they’re damaged in a fire or stolen.
  • Liability insurance covers you if someone is injured on your property by anything from falling down slippery steps to being bitten by a pet (or rabid in-law).

The homeowners policy you purchase must meet your lenders basic requirements for hazard insurance. What the lender desires, of course, is protection for its investment in your mortgage. Your home is the mortgage loan’s collateral, and if some catastrophe lays waste that collateral, your lender will be out the money. Your home is of course more than just an investment to you, and hazard insurance will protectsyou, too. Its in your best interest to buy an insurance policy that’s affordable, and that offers the coverage you need if the unexpected happens. Hazard insurance covers both the contents and the structure of a home. If an electrical fire breaks out in the kitchen, for example, the insurance company pays to fix the fire and smoke damage. If a neighbor kid’s homerun breaks a window, you’re covered. If thieves steal your Bose stereo, you’ll get money to replace it. Most policies will also cover personal property that you temporarily carry from the home, like an iPod or laptop computer that’s stolen from your car.

You may need supplemental coverage for certain items:

  • Fixtures and structures that aren’t part of your house, such as a separate shed or garage, workshops or barns, the driveway, fences, and walk–ways.
  • Landscaping, including shrubs, trees, and other plants.
  • Loss of use, which pays for your meals and lodging (beyond a “normal” cost) if your home is so damaged that you have to vacate while it is being repaired or rebuilt. Standard policies cover loss of use for 1 year. You can purchase 2 year coverage. Two year coverage can be a good idea if you find yourself rebuilding from the ground up.
  • Some policies require a list of all personal property you want covered, such as computers, jewelry, and artwork, property related to a home business, such as inventory and office equipment. These items are covered to an established amount. If you want higher limits, you can buy additional coverage.

Standard homeowner’s policies don’t cover some “Acts of God”. Damages from these causes are typically excluded:

  • Earthquakes
  • Floods
  • Mudslides
  • War or police activity
  • Power outages
  • Dry rot
  • Poor maintenance
  • Sewer back-ups
  • Vermin
  • Vacancy of 60 days or longer

You may be able to buy supplemental riders for some of these situations, but they can
Be expensive, and some insurance companies don’t offer it.

Standard homeowners insurance doesn’t cover damage from flooding. Instead, you buy federal flood insurance from the governments National Flood Insurance Program (NFIP). Information on NFIP’s residential coverage policies is available at www.floodsmart.gov. If you’re in a designated flood zone, your lender will require you to purchase flood insurance. But, no matter where you live, you may want to buy a policy anyway. Even areas that aren’t normally at risk of flooding can itself underwater when a deep snow cover melts quickly, a nearby river overflows, or several days of heavy rainfall. NFIP will cover up to $250,000 for damage to the house and $100,000 for personal property damage. If you want additional coverage, contact an independent insurance agent who can help you locate a private company that offers supplemental flood coverage. Not sure whether or not your home is at risk of flooding? Go to the federal “Floodsmart” site and fill in the simple profile form. You’ll get an assessment of your property’s risk, insurance agents in your area, and estimated annual premiums.

Earthquake damage is excluded from the typical homeowners policy, so if you live in an earthquake prone area, buy coverage. You can buy a separate policy or add a rider to your standard policy. To evaluate the chances that an earthquake will rock your world, check out FEMA’s earthquake risk table, or the U.S. Geological Surveys earthquake maps .

When you become a homeowner, you become responsible for what occurs on your property. Liability insurance is twofold, insuring you if someone is injured on your property or by someone in your family.

  • Medical pays the medical bills of other people (that is, people who don’t live in your household) if they’re injured on your property. It also pays other peoples medical bills if a member of your household (including most pets) injures someone while not on your property. Policies cap medical liability at a certain amount, usually $100,000. With medical costs skyrocketing, it’s a good idea to buy additional coverage. Aim for at least $1,000,000.
  • Personal liability covers you if someone sues you for personal injury or propery damage. This covers any damages you have to pay as well as legal fees, up to an established limit. The policy includes events that happen on or off your property caused by any person of your household.

The situations below require additional supplemental liability coverage.

  • Injuries caused while driving (this is covered by your car insurance policy, not your homeowners)
  • Liability concerning a home business that you operate
  • Injuries to domestic help, such as a nanny or a housekeeper
  • Injuries to tenants

Liability related to pets is a thorny issue. Insurers in some states can refuse to cover pets or can charge higher premium rates for certain breeds of dogs and exotic pets. Other states don’t permit homeowners insurance to refuse coverage based on a dog breeds, but only if an individual dog has a history of causing damage or injury.

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