Understanding Home Insurance

Understanding Home Insurance

Almost everyone who owns a home pays their mortgage to the mortgage company every month.

That payment usually includes principal, interest, property tax, and hazard insurance. The mortgage company puts the property tax and home insurance in an escrow account and pays it to the county and the insurance company once a year. So, you end up paying home insurance without much thought and without knowing what benefits you can receive.

It is not the mortgage company that chooses which home insurance company to buy, but the homeowner who pays the money every month. The mortgage company’s biggest concern is whether the house they bought with the money they loaned is insured or not, and they pay the insurance premium to the insurance company that the customer chooses once a year.

The following are terms used in home insurance:

Dwelling

This refers to the cost of the entire house minus the land and foundation. For example, if a house is completely destroyed by fire, the land and foundation will remain, so the insurance company will pay the cost of rebuilding the house, i.e. the cost of Dwelling.

Other Structures

This refers to the cost of buildings separate from the house, usually 10% of the Dwelling cost. This covers garages, sheds in the backyard, fences, etc. that are not attached to the house.

Personal Property

This includes personal belongings in the house. Pets and cars are not included. In the event of a fire, the insurance company will compensate for all lost possessions, but in the event of theft or loss, there is a maximum compensation limit depending on the type of property. Examples include cash, items used for work purposes at work, computers, trading cards, jewelry, firearms, silverware, rugs, etc. Usually, 50% or 75% of the Dwelling price is included in this cost, depending on the type of insurance.

Personal Liability

This is an item that compensates for damages suffered by a person due to the fault or neglect of the homeowner. For example, if a pedestrian falls and hurts his back because the snow in front of the house was not cleared, this item is used when the victim files a lawsuit for compensation for the loss of back function. In Washington State, the minimum amount that must be held is $1,000,000.

Medical

This item pays for medical expenses in cases where the dog in the house bites the neighbor’s child, injures someone with a golf ball, or a guest who comes to the house to help with chores hurts his finger. The minimum amount is $1,000 per person, and this amount can be increased optionally.

Nowadays, it is common to purchase a Replacement Guarantee for home insurance. This guarantees that if damage occurs, you will be compensated with the same item. For example, a 10-year-old TV is almost impossible to compensate if it doesn’t have a replacement guarantee, but if it does, you can get a new TV. If your house is completely destroyed by a fire and there is no set cap (maximum compensation), the insurance company will build you a new house regardless of the cost.

Many insurance companies are avoiding earthquake insurance because they say there will be an earthquake in the Washington area in the future. Since it is usually stated in the home insurance policy that damage caused by an earthquake is not covered, you can add a clause that allows you to pay more for compensation if necessary. In addition, you should purchase separate flood insurance to cover damage caused by a flood.

Finally, buying a house is a major investment that you will only make a few times in your life. Therefore, it would be meaningful to check whether your current home insurance can sufficiently protect this large investment. It would be a good idea to contact your insurance agent today.