The Basics: Homeowner's Insurance

Insurance is so common now that it isn’t uncommon to purchase it for even a simple cell phone. Nobody wants to pay out of pocket when things go bad, so they double down with the insurance option.

But when it comes to owning a home, there are countless different options and offers to choose from, under many different prices with many different fees. It can be complicated, but it’s important to understand exactly what you’re paying for now, so you don’t pay later.

Essentially, homeowner’s insurance is a kind of insurance that covers private homes – such as the common single-family detached home – from incidents that the homeowner could never afford. It can cover many different things, depending on the particular policy, including incidents that affect the homeowner, the home, or anything else as outlined in the policy.

The insurance is usually set up through a term contract – that is, one that is set for a fixed period of time. The homeowner then pays a decided premium at the end of every term. The safer they think your home is, the less of a premium you have to pay. For example, if you install a state-of-of-the-art security system, or you home is located close to a police or fire station, or it has hurricane shutters, you would likely pay a lower premium because your home is not as likely to see significant damage.

Another factor of your homeowner’s insurance is the deductible. This number is basically the amount you would be willing to pay out of pocket if you suffer a loss, and so the popular choice is to pick the lowest deductible possible. However, this may not be such a good idea.

“What you want is coverage for the risks that you can’t pay for yourself,” says Jack M. Guttentag, professor emeritus at Wharton School and head of He says the best option is to see how much income you have coming in and out, and to decide from there what a realistic deductible is – not just pick the lowest one you can get. In the long run, this will save you money. The important thing is to do everything you can to ensure you don’t even have to see the deductible put to use.

Homeowner’s insurance is there to be a safety net for when things take a turn for the worse. Be prepared by getting your home safe from things you can prevent, and homeowner’s insurance will take care of the rest. Now you have a basic understanding of what you’re paying for, and what it will do for you in return.


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