The basic principle behind homeowners insurance is calculated risk. Very basically, an insurance company will work out the likelihood of an accident and the cost of putting it right again, and based on this figure, it will set a premium. In the event of an accident, homeowners can make a claim and the company will pay out the agreed amount.??Insurers calculate the likelihood of accidents for a group of people with the same set of circumstances, and importantly, how much the resulting claims will cost.
A big factor that affects the risk is where this group of people lives. Insurers collect records of claims that indicate factors or circumstances in certain neighbourhoods that impact on the likelihood of claims – for example, crime rate.
Many homes are insured against natural perils such as fire, and consequently one factor that affects premiums is a house’s proximity to water sources. Other factors such as heating, electricity, plumbing, roofing and security systems also have an impact on risk assessment?
Homeowners can select the types of coverage they want, and obviously the better the coverage, the higher the premium. Unlike on the road where it’s illegal to drive without insurance, homeowners are not obliged to have minimum home insurance, and thus it’s up to the individual to select the type of coverage that best suits his or her property and possessions. While there’s homeowners insurance for those who own properties, there’s also insurance that protects the personal property of renters and tenants against damage or loss, and this coverage is separate from the damages that might occur to the structure that is rented.
It’s important not to have less home insurance coverage than is needed. While most policies offer maximum coverage for the building, they don’t always cover the contents, and it’s important to understand and review policies carefully before settling for a particular one.