Whether you plan to buy a new house or have paid off the mortgage, homeowners insurance provides you with the financial protection needed if your home gets damaged or destroyed.
Even mortgage companies require that borrowers have insurance coverage for their property. They won’t finance a residential property or make a loan without proof of insurance. Read on to find out more about homeowners insurance: what is it and why is it important.
What Is Homeowners Insurance?
Typically, homeowners insurance pays for damages or losses to your property resulting from unfortunate events such as burglary or fire. If you have a mortgage, your lender would like to know if insurance protects the property. In short, lenders need proof that you have homeowners insurance.
In general, a homeowners insurance policy covers damage and destruction done to your resident’s exterior and interior, personal liability causing harm to others, and theft or loss of possessions. These policies consist of three coverages: a replacement cost, an extended replacement cost, and actual cash value.
Why Is It Important?
Homeowners insurance helps you get a mortgage because lenders require you to have one until you repay the loan. The terms and conditions of the mortgage outline the requirements. Here are the two reasons why homeowners insurance is important.
- It protects the homeowner’s property.
- For lenders, the insurance protects the financial interest that they expect from your property.
How Are the Policy Rates Determined?
Several factors determine the rates, including the claim’s severity and how often homeowners process claims. The rates especially vary if there are multiple claims for the same issue, such as wind storms, water damage, and so on. Although the primary purpose of insurance companies is to pay claims, they are here to make money as well.
Hence, applying for homeowners insurance that had several claims in the past three to seven years can elevate the insurance premium into a higher price tier. You may not be eligible for the policy based on past activities. Moreover, the building material, crime rate, and neighborhood play a key role in determining rates.
That was all about homeowners insurance: what is it and why is it important. Having insurance can’t help you prevent damage to your belongings. But it provides you with a financial safety net whenever unexpected things happen.