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Homeowner's insurance protects your home, belongings, family, and valuables in the event of unexpected misfortunes like vandalism, theft, accidents, or natural disasters. It is designed to replace or rebuild your property when it gets damaged, from reroofing a garage after a hurricane to purchasing a laptop stolen from your home office. Homeowner's insurance doesn't just cover your home, but usually extends to shield you from accidents your pets, family, or property cause, such as a dog digging up a neighbor's new magnolia or a child breaking a window with a baseball.
The aspect of homeowner's insurance we are most familiar with is the part of the policy that covers peril when it inflicts damage on the contents of your home and the house itself. Of course, every policy is different, so it is best to consult with a variety of companies or advisors, and be clear about what your policy does and doesn't cover. Certain policies may not reimburse you for the value of property in the event of fire, flood, mudslide, hail, earthquake, hurricane, tornado, and other "acts of God."
Your reimbursement may also be limited, depending on the constraints of your insurance. Homeowner's insurance is designed to assure you that you will not panic when things like jewelry, cameras, collectibles, heirloom silver, computers, clothing, stored vehicles like boats, or legal documents are lost or irreparably harmed. Again, be sure that your policy's monetary limits match what all of your valuables are actually worth. There are always ways of increasing the coverage amount when you plan ahead.
After a natural disaster, your homeowner's insurance can help you rebuild your home exactly as it was. This would include basics like plumbing, framing, roofing, electrical, flooring, and appliances. But it also includes furniture, paint, lawns and trees, sheds, or fences. Some policies might reimburse you for the depreciated cash value of such items in older homes, while most will provide the replacement expenses. While your home is getting fixed, you'll be able to add the cost of temporarily relocating to a hotel or apartment.
Another important item of coverage offered by homeowner's insurance is liability. Liability means that your provider will help you with damages, court costs, and other expenses arising from accidents caused by a member of your family or pet, or occurring on your property. Therefore, if the mail carrier trips on your stairs and wants to collect medical damages for a broken ankle, you'll be covered. Also, if your child accidentally rides her bicycle into a neighbor's gate, you can afford to fix it.
@rugbygirl - That's a nice point you make. If you choose a high deductible, you can save the monthly difference to build a cash cushion for more minor problems.
People should know that the most common exclusion in homeowner's insurance coverage is flood and water damage. If you are at risk for flood, you usually have to buy a separate flood insurance policy.
Your bank might require it - but generally they only require if your area is at *really* high risk of flooding. Plenty of people in the New Orleans area got bit by that one when Katrina hit - their policies covered wind damage, but not water damage. You might want to consider buying flood insurance even if flood is unlikely - and of course, the less likely a flood is, the cheaper the insurance will be anyway!
I encourage people to think of their homeowners insurance policy as being for catastrophes only; I always keep a high deductible on mine to reduce the monthly premium.
Why is that important? Because insurance companies don't like to insure people who actually *use* the insurance, and they have the legal right to cancel your policy at certain intervals and refuse to sell you another one. I you make a claim for every stolen bicycle and broken window, you might find yourself without insurance.
States do have last-resort policies that are available to anyone, but these are expensive and generally have very limited coverage.