Homeowners insurance is a type of insurance you’ll likely be required to get when you buy a house. While you may never have to use it, a homeowners policy can be an important source of financial support if something damages or destroys your house.
What is homeowners insurance?
Homeowners insurance is coverage you can buy to protect yourself financially against certain types of damage and lawsuits.
To get this coverage, you pay an insurance company a certain amount of money, called a premium. In return, the company will pay you if a covered event, such as a fire, damages your home or belongings. Homeowners insurance may also provide financial support if you injure someone else or damage their property.
Homeowners insurance has four main functions:
Pay to repair your house, landscaping and other structures.
Pay to repair or replace your personal belongings.
Pay for you to live elsewhere while your house is being repaired.
Cover legal costs and penalties if a court finds you responsible for damage or injury to someone else.
Is homeowners insurance required?
Homeowners insurance isn’t required by law, but if you have a mortgage, your lender will likely require you to insure the home to protect its investment. Even if you don’t have a mortgage, home insurance is almost always a wise purchase. Because it gives you property and liability coverage, a homeowners policy is a financial safety net you may someday be glad to have.
Homeowners insurance vs. mortgage insurance
Homeowners insurance isn’t the same as mortgage insurance, which you may have to buy if you put less than 20% down on your home loan. (Federal Housing Administration, or FHA, loans and other federal loans may also require mortgage insurance, regardless of your down payment amount.) If you default on your loan, mortgage insurance will reimburse your lender.
Mortgage insurance protects your lender, while homeowners insurance protects you.
What does home insurance cover?
A homeowners insurance policy is full of fine print about what’s covered and what’s not. One important thing to remember is that home insurance is designed to pay for sudden, accidental damage — not maintenance issues.
Say you wake up one morning and discover your water heater isn’t working. A standard homeowners policy won’t pay for a repair person to come out. But if a hailstorm leaves dents in your roof, your policy can probably help with those expenses.
Even some sudden accidents are excluded from your policy. For example, most homeowners insurance won’t pay for damage from earthquakes or flooding unless you buy extra coverage.
Homeowners insurance definitions
The following definitions may help you better understand your homeowners insurance policy.
Standard coverage types
The following are the six main parts of a homeowners policy.
Loss of use coverage: Pays for hotels, meals and other extra expenses if you need to move out of your house while it’s being repaired.
Personal liability coverage: Pays to defend you in a lawsuit if someone sues you for injuring them or damaging their property. If a court finds you at fault, this coverage can also cover legal damages, up to your policy limit.
Medical payments coverage: Pays small medical bills if someone gets hurt on your property or your dog bites someone else, even if the injury wasn’t your fault.
Other important terms
Claim: A request for your insurance company to pay you under the terms of your policy. To file a claim, you’ll reach out to your insurer (online or by phone) and explain the extent of the damage. The insurer will evaluate your claim and pay or deny it, depending on your coverage.
Declarations page: Typically the first page of your homeowners policy. It displays important information such as your premium amount, your coverage limits and the address of the home that’s insured.
Deductible: The amount of a claim you’re responsible for. The insurance company will subtract this amount from your payout if you file a claim. The more damage you’re willing to pay for yourself, the lower your homeowners insurance premium will be.
Endorsement: An amendment that adds, changes or removes something in your homeowners policy. For instance, if you’ve paid extra for identity theft coverage, your insurer will add an endorsement to your policy to explain what’s covered.
Limit: The maximum amount your policy will pay for a given type of claim. Homeowners insurance policies generally have different limits for each type of coverage. For example, you may have a coverage limit of $300,000 for the structure of your home and $150,000 for your belongings.