Home insurance (also known as homeowner insurance) is a branch of property insurance that offers protection against loss and damage of a person’s home, assets within the home, and/or any liability caused by an accident within the home.
How home insurance works
It is necessary for every homeowner to own home insurance. As accidents in the home are unplanned so are the bills that come with them, having homeowner insurance will cover you in such times.
Home insurance policy offer coverage for four types of incidents on a property, namely;
- Interior damage
- Exterior damage
- Loss or damage of assets and furnishing
- The injury got within the property.
When a claim is made on any of the above-listed occurrences, A deductible earlier stated in the contract is required of the homeowner to pay, and the insurance company covers the rest. For example, if a claim is made for an exterior fence repair, that occurred on the property, the cost of repair is estimated by a claim adjuster to be $15,000. If the claim is approved, the insured would be required to pay a deductible say $6,000 as agreed in the contract and the insurance company pays for the excess of $9,000. It is also important to note that the higher the deductible the lower the price of the premium.
Home insurance has a liability limit which determines the amount of coverage an insured have in case of any incident. If a claim is made, the liability limit determines the coverage percentage that would be allocated to; the repair of damaged or replacement of lost property or personal assets, and the cost of alternative residence while the work is being done on the house.
Although most policies offer coverage for loss as a result of hurricanes and tornadoes, Incidents as a result of Natural disasters such as floods or earthquakes and in cases of war are usually not covered in a traditional home insurance policy. Insured people who live in locations prone to these natural disasters may need to purchase supplemental insurance to insure their properties against loss or damage due to the event of such natural disasters.
Can home insurance be tax-deductible?
The two main ways where you can get a tax deduction from home insurance, are
- If/when you use part of the home for small-scale business: if you have a space-qualified in the square feet as a home office space, in the property, you can get a tax deduction on that portion of the property.
- If you receive rental from the property as a landlord: if you collect rent on a property that has homeowners insurance, the value for the insurance is tax-deductible.
How is home insurance related to mortgages?
If you as a homeowner decide to apply for a mortgage, the mortgagor would require home insurance from you before the loan is approved even if you meet all other terms.
Your periodical payments made towards your home insurance are added to your monthly mortgage payment and are kept in an escrow account. Once the home insurance is due it is settled from the escrow account.
Home insurance and mortgage insurance
Mortgage Insurance is different From home or homeowners insurance, in that, mortgage insurance is required from homeowners who make a down payment of less than 20%. Mortgage Insurance protects the lender if the homeowner falls back on mortgage payments when due. Simply, home insurance protects the homeowner while mortgage insurance protects the mortgagor.
Home insurance and home warranty
Although they may sound alike, they actually mean different things. A home warranty takes care of the repair and replacement of home appliances such as sinks, ovens, water heaters, etc in the event that it gets damaged within a specified period (usually 1year) after buying the property. It is not part of the requirements to get a mortgage.
Getting home insurance is a necessity and should not be overlooked as it provides cover in times of emergency on the property.