Home insurance, also commonly called hazard insurance or
homeowner's insurance (often abbreviated in the US real estate industry as
HOI), is a type of property insurance that covers a private residence. It is an
insurance policy that combines various personal insurance protections, which
can include losses occurring to one's home, its contents, loss of use
(additional living expenses), or loss of other personal possessions of the
homeowner, as well as liability insurance for accidents that may happen at the
home or at the hands of the homeowner within the policy territory.
Homeowner's policy is referred to as a multiple-line
insurance policy, meaning that it includes both property insurance and
liability coverage, with an indivisible premium, meaning that a single premium
is paid for all risks. In the US standard forms divide coverage into several
categories, and the coverage provided is typically a percentage of Coverage A,
which is coverage for the main dwelling.
The cost of homeowner's insurance often depends on what it
would cost to replace the house and which additional endorsements or riders are
attached to the policy. The insurance policy is a legal contract between the
insurance carrier (insurance company) and the named insured(s). It is a
contract of indemnity and will put the insured back to the state he/she was in
prior to the loss. Typically, claims due to floods or war (whose definition
typically includes a nuclear explosion from any source) are excluded from
coverage, amongst other standard exclusions (like termites). Special insurance
can be purchased for these possibilities, including flood insurance. Insurance
is adjusted to reflect the cost of replacement, usually upon application of an
inflation factor or a cost index.
The home
insurance policy is usually a term contract, i.e. a contract that is in
effect for a fixed period of time. The payment the insured makes to the insurer
is called the premium. The insured must pay the insurer the premium each term.
Most insurers charge a lower premium if it appears less likely the home will be
damaged or destroyed: for example, if the house is situated next to a
fire station or is equipped with fire sprinklers and fire
alarms; if the house exhibits wind mitigation measures, such as hurricane
shutters; or if the house has a security system and has insurer-approved locks
installed. Perpetual insurance, a type of home insurance without a fixed term,
can also be obtained in certain areas.
