Home owners insurance can be regarded as a necessity for anyone that owns a home - this isn’t necessarily news to people who’ve previously owned property however, to first time buyers home owners insurance may seem a little bit confusing.
Changes are, your loan provider has requested that you take up some form of mortgage insurance or, have by default included this onto your home loan in the form of LMI or, Lenders Mortgage Insurance. This should not however, be confused with homeowners insurance which protects you and your family from personal liability to damage done to your property or that of a third part in addition to the contents of your home. If you're unable to work for whatever reason, the policy will pay out a specific percentage of your usual income so that you can cover your mortgage payments and other immediate expenses. This can be anything from 40% of your monthly income to 50 – 160% of your monthly mortgage repayment or rent. You may be wondering why anyone would need to take out a policy that covers more than 100% of your monthly mortgage installment; this additional payout will come your homeowners insurance (the insurance that covers your home and contents) and to make up for any possible variable rate increases for those who do not have a fixed-interest mortgage.
There is a big difference between homeowners insurance and mortgage insurance; homeowners insurance will cover your home and belongings and mortgage insurance will cover your mortgage payments only. Your home loan provider will require that you take out homeowners insurance because they want to ensure that they protect their own investment. In the same way many banks will require that anyone with a mortgage carry mortgage insurance. This should be at a minimum LMI or, Lenders Mortgage Insurance which essentially protects the bank in the case that you default on your home loan. If you have put up a home loan deposit of 20% or less you will be required to carry some form of mortgage insurance.
Homeowners insurance has a far more important function as well; to protect you from any liability arising from property damage whether this is done to your own home or to someone else’s property which is termed third party damage. If you’ve cause any damage to your home you homeowners insurance will payout to fix the damage. As a new home owner, chances are you simply don’t have the money to pay for any serious property damage which could arise from storms, flooding, fire and earthquakes. If as a result of negligence you’ve set the kitchen ablaze – liability cover would pay for the damage caused and if this fire has spread to a neighbor’s home – you’ll also be covered. This means that if the kitchen fire spread and took burnt the side of a neighbor’s house – your policy would cover you for damage to your own home and that of the neighbors. If any damage is cause intentionally by you or your family you will not be covered for this damage.
Homeowners insurance will cover all of your electronics, appliances, furniture and personal belongings up to a specified amount depending on the level of insurance you choose. Tools, equipment and other valuables including clothing, books, linen, carpets and other items are also covered. You will also be able to insure your jewelry up to a certain amount and any other valuable items in your home. If someone steals you're credit cards you may be able to claim if they are illegally used up to a set amount as well while any cash you may have had in your home can also be covered up to a certain limit. If you have to relocate due to fire, flood or earthquake damage than you will be paid out for your temporary accommodation or, a set percentage of your complete coverage limit. You will also be covered for accidental damage to windows, doors, locks and walls among other items. Its important to carefully review your homeowners insurance policy to ensure that you understand what you are covered for and what you are not.
Premium plans have a lot of additional benefits that the basic plans will not cover such as replacement and repair of any household items including antiques and special items. You could also cover your belongings while they are in any storage facility, in transit or any damage incurred to your belongings while your home is being renovated or altered. The level of cover that you select depends entirely on the value of the content of your home and this can be anything up to $1 million and in some cases more. Imagine causing such extensive damage to your home and even someone else’s property that you’d end up being thousands and even millions of dollars in debt? Although this may seem like an unlikely occurrence - its highly possible as many homeowners have experienced and, you need to protect yourself by ensuring you get the right kind of cover. This may seem like an unnecessarily huge amount however, if we consider that many properties exceed $1 million in value – you can certainly understand why this is necessary. If you own many expensive items that would be a nightmare to replace than you should opt for the most inclusive policy to ensure that you can cover the replacement of these items.
When you review your policy it’s important to make sure that you have enough cover to replace your contents and that you're covered for a substantial amount of personal liability. You can also select an excess that suits you – with a lower excess meaning that you’ll have higher premiums while opting for the higher excess will l bring down your premiums quite substantially. If you do opt for the lower excess you must ensure that you have enough money put away in a savings or emergency fund to cover this at any given time. Being under insured poses just as many issues as would having no insurance at all since you’ll still have to come up with the money to pay for all or part of the damages cause which can certainly run into thousands of dollars.
If you're shopping around for homeowners insurance quotes and you want to take out any other type of insurance such as car or income protection insurance, than you may want to search for insurers that offer discounts for people that take out more than one insurance policy. You may also want to look for a provider that offers no claim bonuses. As with any type of insurance it truly pays to shop around – since premiums can vary from one provider to the next without any specific reason.
