1. What is Home Insurance?
Home insurance is a contract between an individual and an insurance company. The individual pays the insurance company a set premium each year, and in exchange, receives protection against fire, theft, or other disasters that would damage their home.
If such an event does occur, the insurance company will pay to restore the home to its pre-disaster state.
2. What are the different types of home insurance?
There are three main types of home insurance: Basic, Broad, and Comprehensive.
A basic policy covers your house against fire, theft, or other disasters but doesn’t cover damage caused by floods, earthquakes, or other events that are explicitly excluded. If you live in a flood risk area, your home insurance policy may have only basic coverage and only cover your house against fire or other disasters.
A broad policy covers everything that’s covered by the basic policy as well as floods. But it still doesn’t cover earthquakes or personal liability, so if you want full coverage, you need a comprehensive policy.
Comprehensive policies offer the best coverage and typically cost the most. It covers everything that’s covered under the basic and broad plans as well as earthquakes and personal liability.
3. Advantages and Disadvantages of home insurance?
There are many advantages and disadvantages of home insurance:
- The policy provides reimbursement for home repairs and replacement (although, the amount reimbursed may not be adequate to completely replace your home or fully restore it).
- Providing insurance coverage for homeowners demonstrates a commitment by the insurer to support its customers. When you need help, an insurer that stands behind its policy shows it is serious about providing value to its customers.
- Individuals with an insurance policy will take precautions to minimize losses that might be covered under the basic coverage of a policy, such as smoke detectors or fire extinguishers in the home.
- A homeowner’s insurance company may have a difficult time estimating replacement costs for the home.
- The homeowner may take unnecessary precautions, like using safety equipment that’s not necessary or using fire-resistant building materials when making repairs.
- The insurance company may improperly deny a claim if the cause of damage is found to be an “act of God.”
- An insurance company might not provide coverage for earthquakes or other disasters that are excluded under the terms of the policy.
- A homeowner might not be eligible to purchase insurance coverage, especially if he or she has a poor credit history or is unemployed.
- The insurer may cancel a homeowner’s policy if there are multiple claims filed by the insured person during a short period of time.
4. What are the limitations of home insurance?
Home insurance only covers damage that is caused by disasters covered in your policy (for example if hailstones break through your roof during a hailstorm, but there was no mention of hail in your policy, you would not be reimbursed).
Additionally, most home insurance policies only cover disasters that take place below the ground (i.e. if a tree falls on your house but it didn’t start as a fire or some other above-ground disaster).