Your home is a huge investment, and put most simply, homeowners insurance helps you protect that investment. Like many pieces of the homeownership journey, insurance can be complicated. It combines a number of different concepts, and more often than not, the language around insurance is really dense.
At Better Cover, we believe in making every aspect of homeownership simple. With that in mind, let’s review what homeowners insurance is and the advantages to buying a policy, why you need to buy a policy during the mortgage process, and how Better Cover can help determine which policy fits your needs to help make the mortgage process go smoothly!
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What is homeowners insurance and why should I buy it?
The short answer is that homeowners insurance can provide the funds to repair or replace your damaged property, including your home and personal belongings, and protect you from certain liabilities.
Of course, like many things, there are a lot of details under the surface here. A homeowners insurance policy is what is known in insurance lingo as a “package policy” and one of the most common homeowners policies is the “HO-3” or “Homeowners Policy Special” policy. The HO-3 comprises five distinct coverages that help keep money in your pocket in case of damage to your property or personal belongings, or exposures to certain liabilities:
- Coverage A (Dwelling coverage): Protects your home, including the structure and any permanent fixtures like plumbing and cabinetry - the stuff that’s part of the house
- Coverage B (Other Structures coverage): This applies to structures on the insured property, but not the dwelling. In other words, buildings which are separated from the dwelling by space or only linked by a fence, utility line or something like that
- Coverage C (Personal Property coverage): This covers all of your personal property, and one interesting thing to note is that it covers your property wherever located, anywhere in the world, not just in your home
- Coverage D (Loss of Use coverage): Coverage D is relevant when the insured premises are considered uninhabitable. This then covers living expenses as well as, if applicable, fair rental value
- Coverage E (Liability coverage): Under “Section 2” of your policy are the liability coverages. Personal liability coverage means that the insurer will pay up to the limit of liability for damages you are considered liable for and typically provide legal defense. Be sure to consult your agent to determine if defense costs will exhaust your limits
- Coverage F (Medical Payments to Others coverage): Often called “Good Neighbor” coverage, this pays for the medical bills of third parties regardless of fault
Depending on the claim, the insurance company will either pay to repair or replace damaged property or reimburse you a certain amount of money (coverages A-D). If you have a liability claim (coverages E & F) because you’re sued for damaging someone, the insurance company will work to defend you and help pay what you’re legally obligated to pay.
When you receive your insurance quote and policy, make sure you walk through each of these coverages with your agent. Each will have a specific coverage limit (the limit the insurance company will pay for a certain type of damage), and it is important to understand and adjust these limits as needed.
One more note: The HO-3 policy covers your home on what is known as an “open perils” basis and your personal property on a “named perils” basis. We’ll cover these terms in more detail in another post but, they will also be outlined in your policy documentation. Make sure to check it thoroughly!
Why does my mortgage lender require me to have homeowners insurance?
Your mortgage lender puts a major financial investment into your home by providing funds for the mortgage loan upfront, so it’s natural that they are interested in protecting your property as well. A common way to do this is with homeowners insurance. Homeowners insurance has a special section, call the mortgagee clause, that will indicate the lender legally owns the home and if there is a claim, the payment must go to them.
How can Better Cover help me fulfill homeowners insurance requirements for my mortgage?
- We are insurance experts who work closely with mortgage experts so we understand your particular insurance needs
- We work closely with your mortgage team to make the process go quickly and easily