Important Basics of Home Insurance Policy
Are your finances strong enough to repair damages to your home and possessions caused by some natural disaster? Unless you’re wealthy, repairing damages to your home and possessions caused by earthquakes or flood might pose strain on your finances. In that case you should think of the proper type of homeowners insurance depending on your financial capacity and place of living. Home insurance is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home.
The home insurance policy is usually a term contract—a contract that is in effect for a fixed period of time. The payment the insured makes to the insurer is called the premium. The cost of homeowners insurance often depends on what it would cost to replace the house and which additional riders—additional items to be insured—are attached to the policy.
Homeowners insurance is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. Damage caused by most disasters is covered but there are exceptions.
The most commonly written policy for a homeowner is called HO_3. It is designed to cover all aspects of the home, structure and its contents as well as any liability that may arise from daily use, as well as any visitors who may encounter accident or injury on the premises. Covered aspects as well as limits of liability must be clearly spelled out in the policy to insure proper coverage. The coverage is usually called “all risk”. Also called an “open perils” policy.
Every year in every state many property owners discover that their homeowners insurance policy will not pay when their homes are damaged by common geological processes such as floods, earthquakes and landslides. Unfortunately, most basic homeowner’s insurance policies do not include the repair of damages caused to your home and your possessions due to an earthquake, nor do they compensate you for the damages and loss your valuables suffer due to an earthquake.
You can usually add additional coverage to your current homeowner’s insurance policy; this should be seriously considered by those that live in areas that are highly susceptible to earthquakes such as California. The lesson to be taken away from this is: “Learn about the geology before you buy the house”. If the home has some geological risk you should not buy it. Or, you should know exactly what your risks are and either find specific insurance to cover them or live in the house informed of your exposure.
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