How Does Homeowners Insurance Work?

When you buy homeowners insurance, it acts as a safety net for your home. With the median home price in the U.S. coming in at $315,000, you could be paying hundreds of thousands of dollars to replace it or repair it. Without home insurance, that money would come out of your pocket.

If the average cost of a house doesn’t convince you that you need homeowners insurance, your mortgage company certainly will. Almost every mortgage provider will require its borrowers to have insurance that covers the full value of a property, and they won’t make a mortgage loan without proof of it.

If you suffer a loss—fire, burglary, severe storm, etc.—you can call your agent or the insurance company and start the claims process. An adjuster will assist you in assessing the damage and determining your reimbursement.

That’s Home Insurance 101, but, as you’ve probably already guessed, there is more to it than that. Here are some of the details:

The benefits you receive from homeowners insurance will depend on several factors

The following factors affect not only the benefits you receive but also the price (premium) that you will pay for the coverage:

  • The limits you set on your policy, both for the structure and your belongings
  • The deductible, which is the amount you agree to pay before your coverage begins
  • The type of coverage you have chosen, which could be either actual cash value (the depreciated amount of your loss) or the full replacement value of your home and belongings

Which areas are protected by homeowners insurance?

There is no one-size-fits-all homeowners policy. You can design them to your specific needs, but there are standard elements to most policies that define the areas of coverage or non-coverage.

Damage to the interior or exterior of your house: these include damage from fire, lightning, vandalism, hurricanes, or other covered disasters. Your insurer will compensate you so that you can rebuild or repair your house.

Detached garages, sheds, or other buildings on the property: these might be covered, or you may need to protect them with a separate policy using the same guidelines as for the main structure. 

Destruction or damage resulting from floods, earthquakes, and poor home maintenance: these are typically not covered and may require separate riders.

Appliances, furniture, and clothing: these and most of the other contents within the house will be covered if they are destroyed in an insured disaster.

Personal liability for damage or injuries: this means you are protected from lawsuits. For example, if your dog bites the neighbor or she falls and injures herself on your property, you will be covered.

Is a furnace covered under homeowners insurance?

In some cases, it’s covered. Let’s say you have a heat pump, and a tree falls on the outdoor unit during a storm and destroys it. Storm damage would be among the list of perils covered by your policy, so your unit would be replaced.

Another scenario: you have an indoor furnace, and frozen pipes cause damage to it. Or perhaps an electrical surge damages the wiring, and it requires extensive repairs. Once again, both are covered perils and would qualify for reimbursement from the insurer.

Now, suppose your furnace breaks down from years of wear-and-tear, or it needs repairs because you haven’t maintained it properly. These are not on the list of covered perils and are not protected by most homeowners insurance policies.

Does homeowners insurance cover laptop damage?

A laptop computer might be covered, but like with a furnace, there are exceptions. With a laptop, the two questions to be answered will be: How are you using it? Whose fault is it for the damage?

Is the laptop for business or personal use?

Homeowners insurance will cover your laptop at home, or away from home if it’s confined to personal use. Many policies will have limits on how much they’ll pay for computer hardware, so you might not be fully reimbursed. If your laptop is used for business, however, you might not have any coverage.

What caused the damage or loss?

If you lose your computer in a fire, someone steals it, or a tree falls on your house and destroys it, you will have a valid claim. If you spill coffee on it or drop it, you’re probably not going to have a claim. Homeowners insurance typically doesn’t protect you from those preventable mistakes, and it also won’t pay for poor workmanship or for an older computer that gives out.

The bottom line

Homeowners insurance typically covers loss and damage to your home’s interior and exterior, the loss or theft of your possessions, and personal liability for harm to others. Your policy will list the perils that will qualify for reimbursement, how much you are willing to pay out of pocket (the deductible), and the total amounts that are covered. 

To get a free quote and learn more about how NSI can help you, click here

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