Whether you are buying a home or shopping for new insurance coverage, it will help you understand the basic terms and conditions of homeowner insurance before you decide on a policy.
The jargon used by real estate agents, lenders, and insurance professionals can be misleading. Adding to the confusion:
- The terms for different types of homeowner insurance coverage often seem interchangeable, but they are not.
- Different lenders may have different requirements for the types of insurance coverage a borrower must have.
- Homeowners may require different types of coverage and restrictions depending on their individual circumstances.
Check out this homeowner insurance glossary for clarity.
Connected: What’s a good mortgage rate?
Full insurance coverage allows a property owner to cover multiple units of property with a single policy. For example, a homeowner with many rented apartments may take out a general policy to insure all of them.
A homeowner’s insurance policy can also be called comprehensive insurance because it offers more than one type of protection. (A standard policy can combine, for example, housing, personal property, and liability insurance.)
Homeowners’ standard policy usually provides for some compensation for unexpected water damage due to faulty plumbing or broken plumbing. But most standard homeowner policies do not cover damage caused by a water spill such as a stream, bay, or river. Such protection usually requires a separate flood insurance policy.
Some property owners may require flood insurance, especially if they live in a high-risk area.
When you hear the term “risk insurance”, it usually refers to the part of homeowners’ policy that kicks in when someone suffers losses caused by certain hazards or “hazards” such as fire, hail, theft, a falling tree, or a broken pipe. …
However, not all hazards are covered by the standard policy. Homeowners usually require separate insurance to cover damage caused by a flood, earthquake, or flop.
A typical homeowner’s policy covers the physical structure of the insured home and other structures in the property, personal belongings in the home, and additional living expenses if the owner cannot stay in the home after being damaged. (However, it is usually necessary to purchase separate insurance to cover costs associated with an earthquake, flood, or flop.)
The policy also provides liability coverage that can protect you as a homeowner if you are legally liable for personal injury or property damage caused by another person on your property or as a result of your activities. For example, if someone is injured because you didn’t fix a porch step, liability insurance can help pay that person’s medical bills.
The liability part of your policy can also provide protection if your pet bites a person or other animal, whether the bite occurred in your own yard or elsewhere. There are no federal or state laws requiring buying a homeowner’s policybut if you have a mortgage, you can expect your lender to require proof that you have this type of insurance.
Homeowner insurance is not the same as mortgage insurance. Homeowner insurance basically protects the homeowner when something unexpected happens; Mortgage insurance is designed to protect the lender if the borrower is unable to make the mortgage payments.
Homeowner insurance is also very different from the protection offered by the “home guarantee”. A home warranty is a service contract that usually covers the cost of repairing or replacing certain appliances and basic home systems in the event of a malfunction, but home guarantees are not required by lenders.
Mortgage insurance protects lenders from the possibility that the borrower will be unable to make home loan payments. When a home buyer appears to have a higher risk of default, mortgage insurance can serve as a backup to reassure the lender that if the borrower fails to make the mortgage payments, the loan will still be paid off.
The lender does not pay for this insurance – the borrower pays.
Not everyone needs to take out mortgage insurance. But if you have a regular loan and your down payment is less than 20% of the purchase price, you will probably need to get private mortgage insurance, usually called PMI, at least until you have paid 20% of the principal balance.
The rules are slightly different for those with a loan secured by the Federal Housing Administration (FHA) or the Department of Agriculture (USDA). When receiving an FHA loan, borrowers must pay the mortgage insurance premium on a monthly basis, no matter how much they invest. There are similar requirements for USDA loans, but the cost is called a “guarantee deposit.”
Homeowners who are planning major renovations or renovations on their property – whether the home is new to them or they have owned it for years – may want to check with their insurance company what their homeowners’ policy covers.
Depending on the size of the project, they may decide that it makes sense to add home renovation, home under construction, or construction risk insurance to fill the coverage gaps. This can help with costs if the homeowner or someone else gets hurt during the renovation, for example, or if the house or nearby property is damaged.
If the repair will be done by professionals, it is also a good idea to ask for proof of coverage and make a copy in case of problems. Contractors and subcontractors must have liability, property and workers compensation insurance.
If the home is unoccupied for an extended period of time, owners may consider adding insurance for unoccupied homes during that time. (Unoccupied home insurance can also provide protection for those who have moved into a new home but haven’t sold their old one yet.)
Rental property and cohabitation insurance
Owners who rent out their home to someone else may want to look at the pros and cons of purchasing rental property insurance versus a standard homeowner insurance policy. In addition to covering repairs if the home or other structures on the property are damaged, rental property insurance can cover the owner’s costs if the renter is injured and files a claim.
The owner can also be reimbursed for lost income if the property is deemed uninhabitable due to a covered loss. What about short-term rental insurance like Airbnb? Commercial use of a home is usually not covered by homeowners’ insurance coverage.
Sharing insurance can provide liability coverage, but not damage to home or personal property. You may need additional insurance for your homeowner.
If you are a renter, tenant insurance will cover your property if something is stolen or damaged. And it can help with certain costs if someone gets injured in the rented house, or helps pay for the rent if the house is damaged and you have to move out temporarily.
While tenant insurance is primarily intended to protect the tenant renting out properties, it can also have benefits for the landlord, so some landlords require tenants to have insurance when they sign the lease. For a landlord, tenant insurance can help take care of some things that are not counted on a homeowner’s or landlord’s policy, including damage from the tenant’s pet.
When you buy title insurance, the title company looks for any ownership issues that could cause legal problems after you close the property. He will look for any liens that may remain, such as property, or clerical problems that have not been identified and addressed in the past.
If there are no problems (or the problems are resolved), the title company will insure your title claim. And if something happens later – let’s say a lawsuit because a title search missed something – the policy should cover the cost of solving the problem.
There are two types of title insurance: Title insurance protects the mortgage company from any costs in a title dispute. Title insurance protects the homeowner. The mortgage company will likely require you to purchase lender title insurance. Title insurance is optional, but once purchased, the coverage is valid for as long as you own your home. Title insurance is not included in the homeowner’s insurance policy.
Separate liability insurance policy, umbrella insurance goes beyond the liability coverage of a standard homeowner or auto insurance policy. It is designed to extend your protection if a lawsuit or lawsuit is brought against you, and only works if you exceed the liability coverage limit set out in your homeowner’s insurance policy.
If you own a rental property, hire a housekeeper or gardener, have a trampoline or pool, or if you have significant assets that you want to protect, you can talk to your insurance company about the additional risk and whether umbrella insurance is right for you. … …
When you buy a home or buy a new homeowner insurance policy, you have a lot to keep track of. Understanding the terms and conditions of homeowners insurance is key in protecting this large investment.
SoFi offers customers the opportunity to contact the following insurance agents:
House and Tenants: Lemonade Insurance Agency (LIA) acts as agent for Lemonade in the sale of this insurance policy, for which it is compensated based on the premiums for the insurance policies sold.
Financial tips and strategies: The advice provided on this website is general in nature and does not take into account your specific goals, financial situation or needs. You should always consider their relevance for your own circumstances.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor endorse or sponsor this article. Third-party trademarks mentioned herein are the property of their respective owners.