Homeowners Insurance 101 (Home Shopping 4/6)

Meet Emily. Emily is in the process of buying
a house in the suburbs. Emily has just watched our videos: “Mortgages
101” and “How to Find a House and a Mortgage”, so she knows exactly how to get a great home
with great financing. However, she still has no idea how to get
homeowners insurance. What should she do? Well, her first step is simple: before she
can buy homeowners insurance, she’ll need to understand it. So let’s start there. Like most types of insurance, homeowners insurance
reduces the costs associated with a risk, in this case the risk of your home being damaged
or someone being injured on your property, in return for a monthly fee called a premium,
which is based on everything from your home’s age to its location. As for homeowners insurance actually works,
it operates through six coverages bundled together, none which are required by law,
though they will be required by your mortgage lender. The first coverage is dwelling coverage, and
protects the structure of the home from theft and pretty much every disaster you can think
of, except floods and earthquakes, whose plans need to be purchased separately. So how does it work? Well, in general dwelling
coverage works through a deductible and limit. A deductible is simply the amount of money
Emily must pay per incident before her insurer pays the rest, while a limit is the maximum
amount an insurer will pay. For example, let’s say Emily’s insurance plan has a $5,000
deductible and her house recently suffered a fire that caused $100,000 in damage. Under
the terms of her policy, Emily only has to pay the first $5,000 of his bill; her insurer
will cover the rest up to her limit, say $500,000. So that’s dwelling coverage works. The next
three coverages also work through a limit, typically as a percentage of the dwelling
coverage. Let’s go through each one: One: Other structures on your property coverage,
which covers things like outhouses and detached garages.
Two: Personal property coverage, which covers the cost of replacing the contents of your
home. And Three: Loss of use coverage, which covers
any expenses you incur while your home is uninhabitable, such as staying in a hotel. Finally, the last two coverages operate a
little differently: their limits are standalone, independent from the dwelling coverage. Again,
let’s go through each. One: Personal liability coverage, which protects
you against lawsuits filed by those injured on your property.
And Two: Medical payments coverage, which covers the medical expenses of those injured
on your property who don’t sue you. Hopefully, you and Emily now have a better
understanding of how homeowners insurance works. Be sure to check our our next video
to learn how to actually get homeowners insurance, and to check out our website, where you can
find more educational material and great homeowners insurance recommendations.


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