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How Does Homeowners Insurance Work?

A homeowners insurance policy, also called HO-3 coverage, is designed to provide protection against a variety of situations that could befall an owner and their property. If a covered event occurs while carrying a valid insurance policy, a homeowner can file a claim for the loss with their insurer.

Covered claims allow the homeowner to be financially protected, whether the damage is as small as a garage roof or as heartbreaking as a fire. An insurance company may step in to cover some or all of the loss endured, taking at least a portion of the burden off of the owners’ shoulders.

Of course, not all homeowners insurance policies are created equal. The types and levels of coverage available differ from insurer to insurer (and even from one policy option to the next), and some perils may not be covered at all.

It’s important to know what is available to you in your area, the types of coverage you need, and what you can expect to spend on a homeowners insurance policy before you even begin shopping around. That way, you can be sure to buy a policy that meets your biggest needs, while also paying a reasonable amount in premiums.

Do You Need to Buy Homeowners Insurance?

If your home is mortgaged through a lender and you are still paying off the loan, chances are that you won’t even have a choice in the matter. That’s because nearly every mortgage lender will require a valid homeowners insurance policy for the duration of the mortgage loan, in an effort to protect the lender’s investment.

After all, until a home mortgage is paid in full, the house technically still belongs to the bank. In order to protect this pricey investment, homeowners insurance is almost always a mandatory part of the bank’s loan terms. The level of coverage required may vary, however, and owners are always welcome to purchase higher coverage limits to further protect their home and belongings.

But what if your home is paid off and there is no mortgage lender? In that case, homeowners insurance is not required but it is still highly recommended… even if a minimum coverage policy is all that’s purchased.

After all, can you afford to rebuild your home after a fire, out of pocket? Would it be financially devastating to replace all of your valuables after a burglary? Could you defend yourself (and your assets) if someone were to file a liability suit against you?

For the majority of homeowners, buying an insurance policy simply makes sense.

What Does Homeowners Insurance Cover?

Depending on the policy type and coverage options chosen, there are different aspects of your home that may be covered by a homeowners insurance policy. Coverage is typically designed to protect a combination of:

  • The actual dwelling/property: If a covered event were to happen to your home, homeowners insurance can help cover the repair or replacement of the dwelling itself.
  • Attached or detached structures: If your home has other structures such as a garage, shed, deck, and the like, these are typically also covered by homeowners insurance.
  • Contents within the home: Your personal belongings can also be covered by homeowners insurance, if you so choose, up to your preferred coverage amount. (Just be sure to pay attention to certain exceptions and special limits, as with high-value jewelry.)
  • Expenses related to displacement/loss of use: If a covered disaster were to force you out of the home for a period of time, you may be able to have certain temporary living expenses covered, like hotel stays and even restaurant meals.
  • Liability of the homeowner and other covered persons: If an incident were to occur on the property — or away from home, in some cases — for which a covered member could be held liable, homeowners insurance can be used to protect them financially.

The specifics of your policy will vary, depending on the insurer you choose and the actual configuration of your policy. Be sure to read the fine print to know what you’re protected against and what your limits are for coverage.

Perils Covered by Homeowners Insurance

So, exactly what kinds of situations are covered by homeowners insurance?

Well, most often you’ll find that a policy will protect against loss caused by natural disasters and common events. These include fire, smoke, vandalism, theft, hail, wind, and/or lightning. Explosions and rioting often make the list, too, as does water damage (though there are often strict rules there regarding the cause of the water damage and how long it has been present).

In regards to liability coverage, a homeowners policy will typically protect against instances such as your dog biting a passerby, a visitor slipping and falling in your kitchen, or even your kid hitting a baseball through your neighbor’s window. As always, be sure to read your own policy’s terms to see what is — and is not — included in your coverage.

Types of Coverage Included with Homeowners Insurance

There are two categories of coverage that your homeowners insurance may provide: named perils and open perils.

Named perils are, as you may already guess, explicitly named. This means that your policy will only protect your home and your family against the events that are specifically named in your coverage documents.

These might include things such as fires, hail or wind storms, explosions, theft, or vandalism. Your policy may also name perils such as earthquakes or floods, if you choose that coverage option. As long as the peril is listed and named in your policy, you can usually count on a related loss being covered by your insurer.

Unfortunately, though, if something happens that isn’t named, your named peril insurance coverage is unlikely to foot the bill.

Open peril coverage, on the other hand, is the exact opposite. With this type of homeowners insurance, you are generally covered by any peril that isn’t specifically named as an exclusion.

You are likely to find that many homeowners insurance policies include a mix of open and named peril coverage. Most often, dwellings are protected by open peril coverage while personal property falls into named coverage territory. However, this truly may vary from one insurer to the next.

How to Compare Home Insurance Quotes

While cost is the primary concern for many homeowners, there are a few other things you should consider when comparing home insurance quotes.

First of all, be sure that your coverage is comprehensive enough to adequately protect your family and your investment. Set realistic limits for personal property, purchase additional coverage types (such as flooding or earthquake insurance) if you’re in an area where that’s a concern, etc. Compare coverage limits first and foremost, eliminating those policies that don’t properly protect you.

Next, you can take a look at the cost. There are a few key factors that go into calculating homeowners insurance rates, or premiums. These include:

  • Value of the home and included structures
  • Policy deductible
  • Location (state, county, and even ZIP code can matter)
  • How much insurance coverage is desired
  • Personal property limits chosen
  • Certain risk factors involving the homeowner(s)

You may be able to save money on your homeowners insurance premiums by raising the deductible, bundling coverage with another policy type (such as auto insurance) through the same insurer, or even reducing/eliminating certain risk factors.

Of course, using an online platform like Gabi can help you shop around for the best possible rates, even if you already have coverage. We can help you bundle your homeowners insurance with your auto insurance to save even more.

What Are Typical Homeowners Insurance Rates?

According to a recent study by the Insurance Information Institute, the cost of the average homeowners insurance policy across the country was $1,173 in 2015.

Of course, that number doesn’t tell the full story, and your own homeowners insurance rates are likely to vary based on key personal factors. For example, the cost of coverage fluctuates between each state, and even moving to a neighboring ZIP code can impact your premiums.

Your own policy cost will be impacted by your home’s value, as well as the value that you placed on your personal belongings if and when opting for that coverage. The lower your deductible, the higher you’re also likely to pay.

Want to see how much you could expect to pay for homeowners insurance coverage, or check whether your current policy is competitively priced? Gabi can help. Simply link your existing insurance policy or upload a PDF of your policy declarations page to get a quick and detailed comparison.

Buying Homeowners Insurance

For many homeowners, purchasing an insurance policy is a requirement from their mortgage lenders. For others, it may simply be a wise financial product to consider.

Either way, buying homeowners insurance is an important step in owning and protecting the things that mean the most to you. By purchasing the right policy, you can not only ensure that your home and belongings are covered, but that your family is protected from any number of financially devastating situations.

And by using Gabi to search for your next policy, you can also ensure that you get the best price possible!

Editorial content on Gabi.com is not written by a licensed insurance agent. It is intended for informational purposes only and should not be considered legal or financial advice.
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