Why do I need home insurance?

If you’re like most Americans, your house makes up a big portion of your net worth. That’s why home insurance is a must – a homeowners policy protects your house, its contents, and, indirectly, your other assets in the event of a fire, theft, storm, liability claim or other peril.

If an unforeseen event causes damage to your home or property, with a good home insurance policy your insurer – not you – will pick up the tab.

Plus, if you’ve taken out a mortgage on your property, most lenders require you to purchase home insurance as a condition of the loan. If home insurance is a requirement, you might as well get the best plan at the lowest price, right?

What type of home insurance policy should I select?

That really depends on how much coverage you want for your property. Here are the 4 most basic types of home insurance coverage you can choose from:

  • Comprehensive Coverage - this policy offers the broadest range of home insurance coverage. It protects the building and its contents for all risks, except:
    • Optional coverage risks - these are risks that are not included in normal policies but which can be purchased separately (examples include sewer back up and earthquake coverage)
    • Uninsurable peril - risks which you won’t be able to purchase insurance for because they can be avoided with proper planning (for example, flood damage cannot be insured if you have built your house on a flood plain) Basic Coverage/Named Perils – this type of home insurance covers only the damages that are specifically outlined in the policy. Broad Coverage – this type of insurance plan basically falls halfway between Comprehensive and Basic Coverage. A mid-priced compromise, it provides comprehensive coverage on main items like the home’s physical structure, but only named perils coverage on the contents inside your home.
  • Basic Coverage/Named Perils - this type of home insurance covers only the damages that are specifically outlined in the policy.
  • Broad Coverage - this type of insurance plan basically falls halfway between Comprehensive and Basic Coverage. A mid-priced compromise, it provides comprehensive coverage on main items like the home’s physical structure, but only named perils coverage on the contents inside your home.
  • No Frills Coverage - This type of coverage is not offered by all insurers and is usually limited to properties that do not meet normal standards. For instance, if you have physical issues with your home, an insurance company may only offer you a very limited No Frills policy.