People take out homeowners insurance for the same reason they take out car and health insurance: If a home is damaged or someone else injured on the property, insurance helps owners cope with the financial consequences. Homeowners insurance is actually a combination of two different types of protection, hazard insurance and liability insurance.
Hazard Insurance
Hazard insurance protects you against unintentional damage or destruction to your house or its contents, including fire, storm, theft, vandalism and similar threats, the Nolo legal website states. It can cover the cash value of the damages or the replacement value; replacement value pays enough to replace what you lost, but cash value only pays what a property is worth. The cash value for a five-year-old $1,000 television won't be $1,000, for instance, because it depreciates with age, making it worth less in the insurer's eyes.Liability
Liability insurance covers personal liability for accidents on your property. If your neighbor trips on a hose in your yard and breaks his ankle, for example, liability insurance will pay for his medical expenses, up to the policy limit.All of the different types of coverages on a policy make up the entire Homeowners policy to provide you with the most protection. The different types of policies by companies are based off of revisions the companies have made to the wording within each policy. Over time companies may add or exclude certain coverages and with that comes a new 'edition' and a new name.
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