What Is Homeowners Insurance?

Homeowners insurance is an insurance policy that pays out cash when a home is damaged by weather, or fire, or other means.

April 06, 2020 by Dan Green

When you buy your dream home and mortgage it, you’re simultaneously acquiring the largest asset of your life and also your largest debt.

Enter homeowners insurance.

Homeowners insurance is an insurance policy that pays out cash when a home is damaged by weather, or fire, or other means.

Homeowners insurance is also known as hazard insurance.

Lenders require homeowners insurance on every home with a mortgage because when your home is damaged, it’s not just you who takes the loss. As an interested party in your home, your lender loses, too.

Insurance helps homeowners pay for repair and replacements after a disaster, restoring homes to their original, full market value.

Imagine if you didn’t have insurance, and your roof sprung a leak. Could you immediately pay for repairs from your savings? How would that affect your budget?

Or, what if you delayed repairs for a few months while you built up sufficient reserves? What other damage might occur to your home because of the leak, and how might that cause your home’s value to drop?

Scenarios such as this are why mortgage lenders require home buyers to have homeowners insurance. With insurance, repairs can be made immediately.

Homeowners insurance does more than protect your asset — it also protects your debt.

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