if someone slips in your wet bathroom floor and injures themselves, they can sue you and possibly win the lawsuit?

This is the very reason why homeowners need homeowners' insurance, and renters need renters' insurance. THEN, before anyone goes to court and sues anybody, the insurance company settles the matter. Even if you DON'T have homeowners' insurance, though, you should be able to make some sort of agreement about payment for injury treatment without going to court. We are too quick to think "sue them in court" when there are less drastic measures that can be taken, and result in more timely resolution than lawsuits.

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Course: Financial Literacy > Unit 6

Lesson 6: Property insurance options and costs

Property insurance policies

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Getting to know property insurance helps you choose the right coverage to protect your home or other belongings from damage or loss. Understanding this type of insurance can lead to better decision-making and peace of mind when it comes to safeguarding your valuable assets.

What is property insurance and why do we need it?

Imagine that you have just moved into your dream apartment or house. You have spent a lot of time and money to make it perfect. But what if something unexpected happens, like a fire, theft, or a big storm? This is where property insurance comes in.

Property insurance, like homeowner's and renter's insurance, helps to protect your investment and belongings from unexpected events. It can provide financial support to cover the costs of repairing or replacing damaged items, so you don't have to worry about losing everything you worked so hard for.

Many people don't realize that property insurance is often required. If you rent an apartment or house, your landlord might require it. If you have a mortgage, your bank will almost certainly require it. So even though it might seem like it's optional, it's not.

Homeowner's insurance vs. renter's insurance: What's the difference?

So, what is the difference between homeowner's insurance and renter's insurance? As the name suggests, homeowner's insurance is for people who own homes, while renter's insurance is for those who rent their living space. Homeowner's insurance typically covers the building itself, any separate structures on the property (like a shed, or play set), and the homeowner's personal belongings. On the other hand, renter's insurance only covers the renter's personal property and not the building itself.

Check your understanding

Which insurance do you need?

You are moving from an apartment to a house. Your landlord is requiring that you purchase property insurance.

What type of insurance do you need?

What types of events does property insurance cover?

Property insurance covers a variety of perils, or hazards, which are events that can cause damage or loss to your property. Some common perils covered by property insurance include:

Fire: This can be caused by accidents, faulty wiring, or even lightning strikes.
Theft: This could be a break-in, robbery, or any other situation where someone takes your belongings without permission.
Vandalism: This refers to intentional damage done to your property by someone else.
Storm: This can include damage from wind, hail, or even a tornado.

However, property insurance does not cover everything. For example, most policies will not cover flooding or earthquakes. You have to buy a separate insurance policy specifically for those events. Additionally, property insurance will not cover damage that happens because you didn't properly take care of your property. For example, if your roof starts to leak because you didn't fix a small problem in time, and it gets worse and worse until it causes major damage, your insurance company may not cover that.

Types of losses or damages property insurance covers

There are three main types of losses or damages that property insurance can cover:

Structural: This refers to damage done to the actual building or structure of your home or apartment. For example, if a tree falls on your house during a storm, structural coverage would help pay for the repairs.
Personal property: This covers the items inside your home or apartment, such as furniture, electronics, and clothes. If someone breaks into your home and steals your laptop, personal property coverage would help replace it.
Liability: This protects you in case someone gets injured on your property, like if a guest slips and falls on your icy sidewalk. Liability coverage would help pay for their medical bills and any legal fees if they decide to sue.

How much does property insurance cost?

On average, the annual cost of homeowner's insurance is around

$ 1,200

. However, this can be higher or lower depending on your specific situation. Some homeowners might pay as low as

$ 600

per year, while others might pay well over

$ 2,000

For example, imagine you live in a small house in a town with a low risk of natural disasters, like floods or tornadoes. Your homeowner's insurance might cost around

$ 800

per year. But if you live in a big house in an area with a high risk of natural disasters, your insurance could cost more than

$ 2,000

per year.

The good news is that renter's insurance is usually much cheaper than homeowner's insurance. On average, renter's insurance costs around

$ 180

per year. Like homeowner's insurance, the cost can vary depending on factors like where you live, the value of your belongings, and the type of coverage you choose.

For example, let's say you're renting a small apartment in a safe neighborhood. Your renter's insurance might cost around

$ 150

per year. But if you're renting a bigger apartment with more expensive belongings, your insurance might cost

$ 250

per year or more.

Factors that affect the costs

There are several factors that can affect the cost of your property insurance. Some of these factors include:

Location: If you live in an area with a high risk of natural disasters like hurricanes or wildfires, your insurance may be more expensive.
Home value: The more expensive your home, the more it will cost to insure it. This is because it would cost more to replace if it were damaged or destroyed.
Deductible: This is the amount you have to pay out of pocket before your insurance kicks in. If you choose a higher deductible, your insurance premium (the amount you pay for insurance) will be lower, but you'll have to pay more if something happens.
Coverage limits: The more coverage you want, the more your insurance will cost. For example, if you want your insurance to cover $$ 100,000$ ‍ worth of belongings, it will be more expensive than if you only want coverage for $$ 50,000$ ‍ worth of belongings.

Comparing property insurance policies

There are several features to consider when comparing property insurance policies, such as:

Replacement cost: This covers the cost to replace damaged items with new ones, without considering depreciation. For example, if your 5-year-old TV is stolen, replacement cost coverage would pay for a brand new TV of similar quality.
Actual cash value (ACV): This takes into account
, meaning it covers the cost of the item minus its decrease in value over time. So, if your $5$ ‍-year-old TV is stolen, actual cash value coverage would pay for a TV of the same age and condition.
Liability: As mentioned earlier, this protects you in case someone is injured on your property.
Personal property: This covers your belongings inside your home or apartment.
Additional living expenses: If your home or apartment becomes uninhabitable due to a covered event, this coverage helps pay for temporary housing and other living expenses.

Examples of property insurance in action

Let's look at a few examples of how property insurance features apply in different situations:

A fire breaks out in your kitchen and damages your stove and cabinets. If you have replacement cost coverage, your insurance would pay for a new stove and cabinets of similar quality. With actual cash value coverage, you would receive money for a stove and cabinets of the same age and condition as the ones that were damaged.
A thief breaks into your apartment and steals your laptop and jewelry. Your personal property coverage would help replace these items, up to the coverage limits of your policy.
A friend slips on your wet bathroom floor and breaks their arm. Your liability coverage would help pay for their medical bills and any legal fees if they decide to sue.

Tornado Outbreak, O'Fallon, Illinois, April 2, 2006. House damaged by a tornado, debris from this house damaged neighboring houses. The insurance carrier declared this home a total loss. Home of George and Ellen Hall. Picture by Robert Lawton CC BY-SA 2.5

Conclusion

Property insurance, including homeowner's and renter's insurance, is an important way to protect your belongings from damage or loss due to certain events. The costs of property insurance can vary depending on factors like location, home value, deductible, and coverage limits. By understanding these factors, you can make informed decisions about the right insurance for you and your home.

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Luigi Castellanos
Posted 7 months ago. Direct link to Luigi Castellanos's post “if someone slips in your ...”
if someone slips in your wet bathroom floor and injures themselves, they can sue you and possibly win the lawsuit?
Button navigates to signup pageComment on Luigi Castellanos's post “if someone slips in your ...”
(4 votes)
Answer
- David Alexander
  Posted 7 months ago. Direct link to David Alexander's post “This is the very reason w...”
  This is the very reason why homeowners need homeowners' insurance, and renters need renters' insurance. THEN, before anyone goes to court and sues anybody, the insurance company settles the matter.
  
  Even if you DON'T have homeowners' insurance, though, you should be able to make some sort of agreement about payment for injury treatment without going to court.
  
  We are too quick to think "sue them in court" when there are less drastic measures that can be taken, and result in more timely resolution than lawsuits.
  Button navigates to signup page
  (10 votes)
Vu Dylan
Posted 16 days ago. Direct link to Vu Dylan's post “really interesting but ho...”
really interesting but how does that work
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(1 vote)
Answer
- David Alexander
  Posted 16 days ago. Direct link to David Alexander's post “You buy insurance to cove...”
  You buy insurance to cover bad things that might happen. If something bad DOES happen, your insurance pays. That's how it works.
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  (1 vote)
Dominic
Posted 2 months ago. Direct link to Dominic's post “if someone slips in your ...”
if someone slips in your wet bathroom floor and injures themselves, they can sue you and possibly win the lawsuit?
Button navigates to signup pageButton navigates to signup page
(1 vote)
Answer
- David Alexander
  Posted 2 months ago. Direct link to David Alexander's post “If you are a homeowner, y...”
  If you are a homeowner, you should have homeowner's insurance to cover these kinds of possibilities. Let's imagine that, while showering in your bathroom, I slip, hit my head, and need to get stitches. We go to the emergency room and get me sewn up. I inform my insurance company of the charges at the emergency room. My insurance company pays the hospital, then asks your insurance company to pay it. The whole thing is taken care of between the companies, which do this kind of stuff all the time.
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  (1 vote)