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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. It requires that
at least one of the named insured occupies the home.
The
dwelling policy (DP) is similar, but used for residences which don't
qualify for various reasons, such as vacancy/non-occupancy,
seasonal/secondary residence, or age. It is a multiple line
insurance, meaning that it includes both property and liability
coverage, with an indivisible premium, meaning that a single premium
is paid for all risks. Standard forms divide coverage into several
categories, and the coverage provided is typically a percentage of
Coverage A, which is coverage for the main dwelling.
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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 floods, 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. Insurance must be updated
to the present and existing value at whatever inflation up or down,
and an appraisal paid by the insurance company will be added on to
the policy premium. Fire insurance will require a special premium
charge, plus the addition of smoke detectors and on site fire
suppression systems to qualify.
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, 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.
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. Anyone with an
insurable interest in the property should be listed on the policy. In
some cases the mortgagee 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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