Meet Emily Emily is in the process of buying a house in the suburbs

Emily has just watched our videos: “Mortgages 101” and “How to Find a House and a Mortgage”, so she knows exactly how to get a great home with great financing However, she still has no idea how to get homeowners insurance What should she do? Well, her first step is simple: before she can buy homeowners insurance, she’ll need to understand it So let’s start there Like most types of insurance, homeowners insurance reduces the costs associated with a risk, in this case the risk of your home being damaged or someone being injured on your property, in return for a monthly fee called a premium, which is based on everything from your home’s age to its location

As for homeowners insurance actually works, it operates through six coverages bundled together, none which are required by law, though they will be required by your mortgage lender The first coverage is dwelling coverage, and protects the structure of the home from theft and pretty much every disaster you can think of, except floods and earthquakes, whose plans need to be purchased separately So how does it work? Well, in general dwelling coverage works through a deductible and limit A deductible is simply the amount of money Emily must pay per incident before her insurer pays the rest, while a limit is the maximum amount an insurer will pay For example, let’s say Emily’s insurance plan has a $5,000 deductible and her house recently suffered a fire that caused $100,000 in damage

Under the terms of her policy, Emily only has to pay the first $5,000 of his bill; her insurer will cover the rest up to her limit, say $500,000 So that’s dwelling coverage works The next three coverages also work through a limit, typically as a percentage of the dwelling coverage Let’s go through each one: One: Other structures on your property coverage, which covers things like outhouses and detached garages Two: Personal property coverage, which covers the cost of replacing the contents of your home

And Three: Loss of use coverage, which covers any expenses you incur while your home is uninhabitable, such as staying in a hotel Finally, the last two coverages operate a little differently: their limits are standalone, independent from the dwelling coverage Again, let’s go through each One: Personal liability coverage, which protects you against lawsuits filed by those injured on your property And Two: Medical payments coverage, which covers the medical expenses of those injured on your property who don’t sue you

Hopefully, you and Emily now have a better understanding of how homeowners insurance works Be sure to check our our next video to learn how to actually get homeowners insurance, and to check out our website, where you can find more educational material and great homeowners insurance recommendations