How Does Home Insurance Work

If you've ever required financing for a property purchase in the past, then you know that you are required to purchase some form of homeowners insurance before being approved for a mortgage. Unfortunately, many people don't understand homeowner insurance, and the first question that comes to mind is – "how does home insurance work?". In essence, homeowners insurance is basically a type of coverage that is offered to property owners, which covers both damage and loss to property or dwellings, and personal liability. Without homeowners insurance, the property owner would be left to cover the full expense of property repairs, including any personal liability expenses incurred during lawsuits. The following paragraphs discuss the various types of homeowners insurance policies, the property protection, damage coverage, and liability protection offered with such plans, and the process of filing a homeowners insurance policy claim.

Types of Homeowners Insurance Policies and Property Protection
Before asking yourself "how does home insurance work?”, you should first learn about the various types of homeowners insurance policies. There are three main categories of homeowners insurance policies – HO-1, HO-2, and HO-3 (with the latter being the most expensive). The primary difference between each type of homeowners insurance policy is the amount of coverage offered. Unfortunately, HO-1 and HO-2 homeowners insurance plans only insure property, come with many coverage exclusions, and do not not provide coverage for household belongings. Thus, the majority of homeowners insurance plans are classified as HO-3 policies, as they cover both the property and the belongings within. There are two basic aspects of HO-3 homeowners insurance policies – liability protection and property protection. Property protection provides coverage for four main types of expenses, repairing the property itself (including any attached structures), repairing other structures located on the property (i.e. – a storage shed), replacing personal belongings within the property, and covering living expenses that are incurred while the property is being repaired.

Types of Damage Covered by Homeowners Insurance Policies
Not all HO-3 homeowners insurance policies provide coverage for all four of the aforementioned expense types, which is why it is important to compare prospective plans thoroughly. Some types of HO-3 homeowners insurance policies will reimburse and maintain the true value of the structure, while others will simply cover the replacement cost of damaged property, regardless of value depreciation. Types of damage covered within the property protection of the policy include damage caused by storms, snow, ice, fire, vandalism and theft. Other types of damage covered may include plumbing or mechanical malfunctions (in which there is no evidence of negligence on behalf of the homeowner). Unfortunately, the majority of homeowners insurance policies don't cover damage caused by floods, earthquakes, or hurricanes.

Understanding Liability Protection and the Claim Filing Procedure
Liability protection provides coverage against claims made by other individuals or parties that are injured on the property of the policyholder. For example, if the property owner hosts a large party and one of the guests is injured, in the event that the guest sues for medical compensation, the homeowners insurance policy will cover all medical bills and liability charges incurred. It is important to note, however, that certain types of property negligence may make you ineligible for liability coverage in some situations. If you believe you have suffered a loss that is covered by your homeowners insurance policy, you'll need to file a claim in order to receive adequate compensation. After you file a claim containing as many details as possible related to the incident, the insurance provider will send out an adjuster to confirm the accuracy of the claim's value. Once the total cost of damages has been established the insurance company will then offer a settlement amount, which may be negotiable.

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