Why Is Property Insurance Important
Property insurance offers coverage for damage, theft or injuries on your property. Discover more about different types of property insurance.
Whether you own your own home or bought property for your business, it is important to get your property insured. Property insurance is a general overview to refer to any insurance plan that covers your property. There is no single category for property insurance. Instead, there are several insurance plans exclusively for buildings. While most of the insurance plans assume you are the owner, there are also insurance plans for renters.
The exact level of coverage varies depending on which type of insurance you purchase. There are some common similarities no matter what the plan, such as protecting against property damage. Property insurance not only protects the building, but also the items inside of your property, which is especially important if you are a business owner. Insurance rates and premiums greatly vary depending on your insurance provider and which type of plan you need. Listed below is a general overview of all the major types of property insurance.
What Property Insurance Covers
No matter what form of property insurance you purchase, it applies to your home and any attached structures. Whether other structures, such as sheds, are covered fairly depending on the plan. Everything inside of your home is also covered through property insurance. The main purpose of property insurance is to provide financial protection against any losses or damages that occur to the property. The most common examples are weather related damage from rain or snow. It also covers emergency situations, such as damage from fires.
Your property does not have to be destroyed for the insurance to kick in. If your home is vandalized, your insurance will cover the costs of cleaning up your home. Recently, property insurance has also been extended to include any damage as a result of civil unrest. This has become especially relevant for businesses. Your property insurance also extends to any individual who is damaged while he or she is on your property.
How is Property Insurance Paid Out
There are two types of payouts for property insurance. You are either reimbursed for the costs of replacing or repairing damaged parts of your property, or you are given cash value for the damage. The cash value is based upon what the property is valued at the time of damage, not based on what you originally paid. Depending on the housing market, you may either end up with more or less.
Replacement costs are equal to whatever a full repair cost. This is decided by whoever you hire for the repairs and does not change based on property value. If your insurance provider questions the cost of repairs, they may request a different appraiser or an exact breakdown of the costs. Additionally, the funds you receive must be used on a replacement. You cannot make a claim, then spend the money elsewhere, even if it is for a property related purchase.
Both types of payments have a liability limit. This refers to the maximum amount your property insurance will pay out. For example, if your liability limit is $50,000 but the repairs cost $51,000, you must pay for the remaining $1,000 out of pocket.
Your property insurance also comes with a deductible. This works similar to other insurance deductibles. You must pay for the deductible before your insurance kicks in. If your deductible is $1,000 and you have $5,000 worth of damage, you pay the first $1,000, then your insurance covers the remaining $4,000. To simplify the payments, your insurance makes one single payment, then subtracts your deductible from the total amount. This also means you can get coverage even if you are unable to initially pay your deductible, but you will still owe your insurance provider.
Types of Property Insurance
If you own your own property, you want to purchase homeowners insurance. At a minimum, homeowners insurance covers your house and any attached buildings. Your insurance covers any injuries or property damage, either caused by you or a visitor. While you are not legally required to get homeowners insurance when you purchase a house, the majority of lenders will not provide a loan without it.
Renters insurance is similar to homeowners insurance, except it applies to rented property. It also offers coverage for additional living expenses if you are forced to move because of damage to the property. For example, you can claim motel costs while repairs are made to the property. A major difference with renters insurance is it does not cover repair or replacement costs. Instead, these will be covered by the building owner’s property insurance.
Condo insurance is a combination of homeowners insurance. It covers any damages to your home, but also offers additional living expenses if you are unable to stay in your condo due to damages. The majority of condo boards require you to purchase condo insurance before you move in.
There are two additional types of property insurance that apply to any type of property. These are flood and earthquake insurance. In most cases, these are not included in standard insurance policies, but cover any damages from floods and earthquakes respectively.
Cost of Property Insurance
The cost of property insurance varies depending on the type of insurance you need. On average, homeowners insurance costs around $125 to $160. This is based largely on the level of coverage from the insurance, your deductible, liability limit and where you live. In comparison, condo insurance is significantly cheaper, costing between $35 to $50 each month. Renters insurance costs even less, around $15 to $30 monthly.
Flood and earthquake insurance have an even greater variance based on your location. If you are in an area where either event is more common, you can expect to pay on the higher end. Flood insurance costs around $115 to $145 each year, while earthquake insurance is around $55 to $75.
Top Property Insurance Providers
There are many property insurance providers to choose from. When you are looking for insurance, make sure to consider multiple providers. Do not only look at what the monthly cost is. A provider may seem pricey at first, but include bundled flood or earthquake protection as part of the plan. The majority of property insurance providers offer each type of insurance. Some of the top insurance providers to consider include: