The terms “property insurance” and “homeowner’s insurance” are often used interchangeably, which can be confusing for first-time homebuyers. Homeowner’s insurance is actually a specific type of property insurance, similar to vehicle insurance or coverage for personal items like jewelry. In the insurance industry, “property” refers to anything you own.
Homeowner’s insurance and renter’s insurance both fall under this broader category. They offer protection for single-family homes, condos, and renters’ belongings, covering damages from events such as fires, storms, water damage, and theft. Some policies also provide temporary housing if your home becomes uninhabitable.
Homeowner’s insurance generally includes a liability aspect that protects you in case someone experiences property damage or injury on your property due to an accident, negligence, or a hazardous condition in your home.
It’s important to distinguish homeowner’s insurance (HOI) from Private Mortgage Insurance (PMI). While homeowners pay PMI premiums when they opt for a zero or low down-payment mortgage, PMI doesn’t offer protection to the homeowner. Instead, it safeguards the lender if the homeowner defaults on the loan. PMI doesn’t cover the homeowner’s investment in the property or any equity they have accrued. Additionally, mortgage lenders typically require homeowners to maintain HOI that covers a certain percentage of the home’s value, while coverage for personal belongings remains optional.
Here’s a breakdown:
Property insurance is designed to protect against risks to your home and possessions, including damages from severe weather, fire, and theft. Optional “riders” can provide additional coverage for incidents like floods and earthquakes or for high-value personal items such as antiques, jewelry, firearms, art, collectibles, advanced electronics, and musical instruments. Some policies even protect against accidental damage, like replacing a laptop that’s broken due to an unfortunate spill or a clumsy moment.
Premiums are the payments you make for your insurance, whether monthly, quarterly, or annually. The amount you pay beyond the basic coverage required by your lender is up to you, depending on the extent of your coverage. You can potentially lower your premium by installing a security system or by avoiding minor claims. You also have the flexibility to adjust your premiums by choosing a higher or lower deductible.
The deductible is the portion you pay out of pocket before your insurance steps in to cover the rest of the costs. It’s smart to set aside funds equal to your deductible so that you can promptly handle repairs once the insurance claim is processed.
For guidance on selecting the right homeowner’s insurance coverage, reach out to your real estate agent.
