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Homeowners
Insurance Information
In the
United States, most home buyers borrow money in the form of
a mortgage loan, and the mortgage lender always requires that
the buyer purchase homeowners insurance as a condition of
the loan, in order to protect the bank if the home were to
be destroyed. Homeowners insurance (often abbreviated in the
real estate industry as HOI), is the type of property insurance
that covers private homes, townhomes and condominiums. It
is an insurance policy that combines various personal insurance
protections, which can include losses occurring to one's home,
its contents, loss of its use (additional living expenses),
or loss of other personal possessions of the homeowner, as
well as liability insurance for accidents that may happen
at the home.
The cost
of homeowners insurance often depends on what it would cost
to replace the house and which additional riders—additional
items to be insured—are attached to the policy. The insurance
policy itself is a lengthy contract, and names what will and
what will not be paid in the case of various events. Typically,
claims due to earthquakes, floods, "Acts of God",
or war (whose definition typically includes a nuclear explosion
from any source) are excluded. Special insurance can be purchased
for these possibilities, including flood insurance and earthquake
insurance.
The home
insurance policy is usually a term contract—a contract
that is in effect for a fixed period of time. The payment
the insured makes to the insurer is called the premium. The
insured must pay the insurer the premium each term. Most insurers
charge a lower premium if it appears less likely the home
will be damaged or destroyed: for example, if the house is
situated next to a fire station, or if the house is equipped
with fire sprinklers and fire alarms. Perpetual insurance,
which is a type of home insurance without a fixed term, can
also be obtained in certain areas.
Anyone
with an insurable interest in the property should be listed
on the policy. In some cases the mortagagee will waive the
need for the mortgagor to carry homeowner's insurance if the
value of the land exceeds the amount of the mortgage balance.
In a case like this even the total destruction of any buildings
would not affect the ability of the lender to be able to foreclose
and recover the full amount of the loan.
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