Definition:
Homeowner’s insurance is a policy that protects a homeowner from financial loss due to damage to the home, or personal belongings, or liability for injuries that occur on the property.
Example:
Lisa buys a house and takes out a homeowner’s insurance policy. A few months later, a kitchen fire caused $20,000 in damage. Her insurance company pays for repairs, minus her deductible, saving her from having to cover the full cost out of pocket.
Explanation:
Homeowner’s insurance is a must-have for most property owners and is usually required by mortgage lenders before closing on a home. A standard policy typically covers:
- Dwelling coverage: Repairs or rebuilds your home after damage from covered events like fire, storm, or vandalism.
- Personal property: Replaces belongings like furniture, electronics, and clothing if damaged or stolen.
- Liability protection: This covers legal expenses and medical costs if someone is injured on your property.
- Additional living expenses: Pays for temporary housing if your home becomes unlivable due to a covered event.
Policies vary in cost depending on the home’s value, location, coverage level, and deductible. Buyers should compare plans and understand what is and isn’t covered—standard policies often exclude flood or earthquake damage, which requires separate coverage.
Why is Homeowner’s Insurance Important in Real Estate Transactions?
Homeowner’s insurance is important because it protects the buyer’s investment and the lender’s financial interest in the property. It ensures that unexpected events, like fire or theft, don’t cause severe financial strain. For sellers, having insurance in place provides protection while the home is listed. For buyers, proof of homeowner’s insurance is usually required before the loan can be finalized. It’s a crucial piece of the homeownership puzzle.