What is Home Insurance?

You may have been told that you have to have Home Insurance, but why? The answer lies in the answer to the most basic question - What is home insurance?

Home Insurance is an agreement between two people - the insured and the insurance company. The insured makes regular payments to the insured. These payments are called premiums. In return, the insurance company agrees to meet certain conditions if the home is ever destroyed or damaged. Sounds like a great deal, right? The first thing to keep in mind is that insurance companies are in business to make a profit.

There are many types of Home Insurance. Some policies pay replacement cost. That means that if you have to make a claim, your insurance company will pay to replace the house and contents. The advantage of this type of policy is that it grows and changes with your changing family and needs. The disadvantage is that it’s typically a more expensive type of insurance.

Another insurance policy pays a flat rate in the event of a claim. For example, you may have your house insured for $50,000 when a tornado strikes. If the insurance company determines that there is at least $50,000 worth of damage, you’ll be paid that full amount. The advantage of this policy is that it’s typically less expensive. The disadvantage is that you will receive $50,000, even if your home and contents are valued at $100,000.

The bottom line is that homeowner’s insurance is a complex topic. The most important question could be the one you didn’t ask, so be certain that you have all your questions answered before you make that first premium.