Homeowner's Insurance
Definition and meaning of Homeowner's Insurance in real estate.
Homeowner's insurance is a policy that protects a property owner against financial losses from damage to the home's structure and personal belongings, while also providing personal liability protection. Mortgage lenders typically require this coverage before approving a home loan to protect their financial interest in the property.
In more detail
The policy typically covers damage from specific hazards, which often include fire, windstorms, hail, lightning, vandalism, and theft. However, standard policies generally exclude damage caused by earthquakes or floods, which require separate specialized insurance policies. The liability portion of the policy protects the homeowner if someone is injured on the property and decides to sue for damages.
Premiums are influenced by factors such as the home's location, age, construction materials, and proximity to fire hydrants. Homeowners often pay their premiums monthly through an escrow account managed by their mortgage servicer.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Required by | Almost all mortgage lenders before closing |
| Typically excludes | Floods and earthquakes without a special rider |
| Also known as | Hazard insurance |
After a severe windstorm damages a buyer's roof, the buyer files a claim under their homeowner's insurance policy, which pays for the roof repairs minus the deductible.
Frequently asked questions
Is homeowner's insurance required by law?
Unlike auto insurance, homeowner's insurance is not required by state law, but it is almost always mandated by mortgage lenders as a condition of the loan.
What is the difference between a deductible and a premium?
The premium is the ongoing price you pay to keep the policy active, whereas the deductible is the amount you must pay out of pocket before the insurance company pays a claim.