Why Do You Need Homeowners Insurance?

People get homeowners insurance for the same reason they get car and health insurance: because they want to be safe. Insurance helps owners deal with the costs if their home is damaged or if someone is injured on the property. Homeowners insurance is a mix of two types of insurance: hazard insurance and liability insurance.

Hazard insurance is a type of insurance.

Hazard insurance protects you from things like fire, storms, theft, vandalism, and other things that happen without your permission, the Nolo website says. There are two ways that it can pay for the damage: cash and replacement. With replacement value, the owner pays enough to replace what was lost, but cash value only pays for what a home or business is worth. This means that the cash value of a $1,000 TV that is five years old won't be $1,000. This is because the TV depreciates over time, which makes it less valuable to the insurance company.

Liability

Liability insurance protects you from having to pay for accidents that happen on your own property. Suppose your neighbor trips on a hose in your yard and breaks his ankle. Liability insurance will cover his medical costs up to the policy limit.

People who want to get a mortgage have to do this

People who own homes have to have insurance because mortgage companies require it. Your house is the lender's collateral when you get a mortgage. Your lender will want you to buy a certain amount of hazard insurance. That doesn't mean you can't buy more than the minimum, says Nolo, if you think it's important.

It has a very specific kind of property

"This Old House," says that home insurance covers most of the things in your house, but there are limits to how much the insurer will pay for things like cash or jewelry. A home office doesn't cover business equipment, either. You might want to pay more money for a policy that will help you if your personal or business property is damaged.

Exclusions

Everyone who owns a home has insurance, but it doesn't cover everything. There may be separate flood and earthquake policies available where you live. Insurers often don't cover things like flood damage and earthquake damage, even though separate policies may be available. "This Old House," says that if you have a "law exclusion" in your policy, it can be very pricey. Insurance companies won't pay for the cost of fixing wiring or roofs to meet building codes if an older building is damaged more than 50% because of a law that says they can't pay for that.