Whether you’re buying a home or shopping for new insurance coverage, it helps to understand basic homeowners insurance terms before you choose a policy.
The jargon used by real estate agents, lenders, and insurance professionals can be mystifying. It doesn’t help that terms for various types of homeowners insurance coverage often sound interchangeable but aren’t. Or that different lenders may have different requirements for the kinds of insurance coverage a borrower must have. Or that homeowners may require various types of coverage, and limits, based on their individual circumstances.
Need some clarity? Consider this homeowners insurance glossary a go-to resource.
Blanket insurance enables a property owner to cover multiple pieces of property with one policy. For example, a landlord who has many rental units might take out a blanket policy to insure them all.
A homeowners insurance policy also may be referred to as blanket insurance coverage because it offers more than one type of protection. (A standard policy may combine dwelling, personal property, and liability coverage, for example.)
Recommended: Homeowners Insurance Coverage Options to Know
A standard homeowners policy typically offers some coverage for unexpected water damage due to a plumbing malfunction or broken water pipe. But most standard homeowners policies do not cover damage caused by an overflowing body of water, like a creek, bay, or river. That kind of protection usually requires a separate flood insurance policy.
Some property owners may be required to carry flood insurance, especially if they live in a high-risk area.
When you hear the term “hazard insurance,” it’s typically referring to the portion of a homeowners policy that kicks in when someone suffers a loss caused by certain hazards or “perils,” such as fire, hail, theft, a falling tree, or a broken pipe.
Not every hazard is covered by a standard policy, however. Homeowners usually need separate insurance to cover damage caused by a flood, earthquake, or sinkhole.
Recommended: Hazard Insurance vs. Homeowners Insurance
A typical homeowners policy covers the physical structure of an insured home and other structures on the property, personal belongings in the home, and additional living expenses if the owner can’t stay in the home after damage. (However, it is usually necessary to purchase separate insurance to cover costs related to an earthquake, flood, or sinkhole.)
A policy also provides liability coverage, which can protect you, as the homeowner, if you’re legally responsible for another person’s injury or property damage when it occurs on your property or from your activities. For example, if someone is injured because you neglected to fix your front porch step, liability insurance may help pay for that person’s medical bills. The liability portion of your policy also may provide protection if your pet bites a person or another animal, whether the bite occurs in your own yard or somewhere else.
There are no federal or state laws that require the purchase of a homeowners policy, but if you have a mortgage, you can expect your lender to require proof that you carry this type of insurance.
Homeowners insurance is not the same thing as mortgage insurance. Homeowners insurance mainly protects the homeowner when something unexpected occurs; mortgage insurance is designed to protect the lender if a borrower can’t make mortgage payments.
Homeowners insurance is also quite different from the protection offered by a home warranty. A home warranty is a service contract that generally covers the cost of repairing or replacing some appliances and major home systems when they malfunction, but home warranties are not required by lenders.
Mortgage insurance protects lenders against the possibility that a borrower might fail to make the payments on a home loan.
When a homebuyer appears to have a higher risk of defaulting, mortgage insurance can serve as a backup to reassure the lender that if the borrower fails to make the mortgage payments, the loan still will be paid. The lender doesn’t pay for this insurance — the borrower does.
Not everyone has to get mortgage insurance. But if you have a conventional loan and your down payment is less than 20% of the purchase price, you’ll probably be required to get private mortgage insurance, commonly called PMI — at least until you have 20% of the principal balance paid off.
The rules are a bit different for those who have a loan backed by the Federal Housing Administration (FHA) or Department of Agriculture (USDA). With an FHA loan, borrowers are required to pay a qualified mortgage insurance premium each month no matter how much they put down. USDA loans have a similar requirement, but the cost is referred to as a “guarantee fee.”
Homeowners who are planning to make major renovations or repairs to a property may want to check with their insurance company to see what their homeowners policy covers.
Depending on the size of the project, they may decide it makes sense to add “dwelling under renovation,” “dwelling under construction,” or “builder’s risk” insurance to fill any coverage gaps. It can help with costs if the homeowner or someone else is hurt during a renovation, for example, or if the home or a nearby property is damaged.
If professionals will be doing the renovation, it’s also a good idea to ask for proof of their insurance coverage and to make a copy just in case there are problems. Contractors and subcontractors should have liability, property, and worker’s compensation insurance.
If the home will be unoccupied for an extended period while the work is being done, owners may want to consider adding vacant dwelling insurance during that time. (Vacant dwelling coverage also might offer protection for those who have moved into a new home but haven’t yet sold their old home.)
Recommended: Guide to Buying, Selling, and Updating Your Home
Rental Property and Home-Sharing Insurance
Owners who are renting a home to someone else may want to look at the pros and cons of purchasing rental property insurance vs. a standard homeowners insurance policy. Besides covering repairs if the home or other structures on the property are damaged, rental property insurance may cover the owner if a tenant is injured and makes a claim. An owner also might be able to receive reimbursement for lost income if the property is deemed uninhabitable due to a covered loss.
What about insurance for short-term rentals like Airbnb? Business use of a house is usually not included in homeowners insurance coverage. Home-sharing insurance may provide liability coverage but not damage to the home or coverage of personal belongings. You may need an add-on to your homeowner’s insurance.
If you’re a renter, renters insurance will cover your possessions if something is stolen or damaged. And it may help with certain costs if someone is injured in the rental home, or help pay for accommodations if the home is damaged and you have to move out temporarily.
Though renters insurance is mostly meant to protect a tenant who is leasing a property, it also can have benefits for the landlord. This is why some landlords require tenants to have renters insurance when they sign a lease. For the landlord, renters insurance can help take care of some of the things a homeowners policy or landlord policy doesn’t, including damage from a renter’s pet.
When you buy title insurance, the title company searches for any ownership issues that might cause legal problems after you close on the property. It will look for any liens that might remain on the property, for example, or clerical problems that weren’t caught and fixed in the past.
If there aren’t any problems (or the problems are remedied), the title company will insure your claim to the property’s title. And if something does come up later — let’s say there’s a lawsuit because the title search missed something — the policy should cover the costs of resolving the problem.
There are two types of title insurance: Lenders title insurance protects the mortgage company from incurring any costs in a title dispute. Owner’s title insurance protects the homeowner. The mortgage company likely will require that you purchase lenders’ title insurance. Owner’s title insurance is optional, but once you buy it, the coverage lasts as long as you own your home.
Title insurance is not included in a homeowners insurance policy.
A separate liability insurance policy, umbrella insurance goes beyond the liability coverage provided by a standard homeowners or auto insurance policy.
It’s designed to expand your protection if a claim or lawsuit is filed against you, and it only kicks in if you exceed the liability coverage limit you have with your homeowner’s insurance policy.
If you own rental property, employ a housekeeper or gardener, have a trampoline or pool — or if you have substantial assets you wish to protect — you may want to talk to your insurance company about the added risk and whether umbrella insurance is right for you.
When you’re buying a home or shopping for a new homeowners insurance policy, there’s a lot to manage. Understanding homeowners insurance terms is key in protecting this major investment.
Shopping for homeowners insurance often requires considering several options, from the amount of coverage to the kind of policy to the cost of the premium. To help simplify the process, SoFi has partnered with Experian to bring customizable and affordable homeowners insurance to our members.
With Experian, you can see personalized quotes from up to 40 top insurance carriers. Match your current coverage to new policy offers with little to no data entry. And easily bundle your home and auto insurance to save money. No fees, no paperwork.
Insurance not available in all states.
Experian is a registered service mark of Experian Personal Insurance Agency, Inc.
Social Finance, Inc. ("SoFi") is compensated by Experian for each customer who purchases a policy through Experian from the site.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.