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What it Covers
Homeowners insurance policies cover many risks that can cause damage to the insured properties. Some of these risks include fire, lightning, theft, vandalism, falling objects, windstorm, hail and damage caused by a vehicle or aircraft. These policies also cover damage caused by the weight of snow, volcanic eruptions and from electric and plumbing systems.
Types of Coverages
There are three levels of coverage that can be purchased: actual cash value, replacement costs and guaranteed/extended replacement costs. Actual cash value coverage provides policy owners with payments to replace homes or covered belongings at their depreciation values. Replacement costs coverage pays for costs of fixing homes or replacing possessions without taking depreciation into account. Guaranteed coverage pays for rebuilding homes even if it exceeds policy limits due to higher construction costs. Extended coverage pays up to a percentage over the policy's coverage limits to fix homes.
By purchasing homeowners insurance policies, homeowners are transferring financial responsibility from themselves to the insurers. Therefore, insurance companies pay for any damage caused to the house structures or possessions inside
the homes up to the policies' coverage limits. These policies also pay the medical expenses of third parties who are injured on the insured properties. Policy owners can also have living expenses such as meals and hotel costs paid for while their homes are being rebuilt.
Homeowners can save money on their homeowners insurance policies by practicing safety and taking on more of the coverage costs out of pocket. Insurers lower premium amounts when policy owners raise their deductibles, which is the amount that must be paid before any claims are paid. Another way for policy owners to cut costs is to install security systems. Insurers also lower premiums for homeowners who don't smoke. This is because 23,000 residential fires each year are caused by smoking, according to the Insurance Information Institute.
Damage caused by floods, earthquakes and hurricanes are not covered under homeowners insurance plans. Homeowners can purchase separate policies to cover these risks. Maintenance problems are the responsibility of the homeowners and are also not covered under these policies. Not all coverages are sold by all companies selling homeowners insurance.