Property insurance | Insurance | Financial Literacy | Khan Academy

Let's talk a little bit about property insurance. The first question is, why would you want to insure property? Well, for a lot of folks, their property is a lot of, uh, the most expensive things they have that would be very hard to replace if something bad happened to it.

There's two big categories of property insurance: you have renters insurance, and you have homeowners insurance. Now, as you can imagine, renters insurance is good for renters. What would it cover? Well, let's say you are renting an apartment, but you own the furniture. You own maybe some of the appliances. Your laptop is in the apartment; you have a big screen TV, you have a stereo, whatever else you have—it could have a lot of value to it.

Now, let's say something bad happened. Maybe there was an earthquake, or a fire, or a flood, and a lot of that stuff got damaged. It would be hard for you, out of pocket, just out of your own, uh, with your own money, to buy all that stuff back. It would take a big hit, and so that's what renters insurance would cover. You would pay a certain amount on a regular basis, on an annual basis—that is your premium.

They usually list the scenarios—maybe there's theft, maybe you got burglarized, maybe the place burned down. Whatever the scenarios that they list, in those scenarios, if your property got lost or damaged or destroyed or stolen, then they will pay you back for that.

Now, homeowners insurance is an extension of it, but when you're a homeowner, you don't just own the furniture and the electronics inside the house. You own the entire house, and as you can imagine, a house itself can be a lot more expensive than, let's say, the furniture inside of the house. Homeowners insurance will cover the entire property.

Let's say if your house were to get destroyed in a fire, it will cover that. Now, there could very well be certain deductibles or certain limits to it, but it's a really important asset for a lot of folks to ensure pretty well. It can obviously cost hundreds of thousands of dollars or more, and you oftentimes borrowed money against it.

You don't want to be in a situation where you borrowed money, you know, you put hundreds of thousands of dollars down payment, you borrowed extra money, you bought a house, and then a flood or earthquake, a fire, something destroys the house. You still owe that money, but you no longer have a house.

So, you can imagine homeowners insurance can be not only valuable. Many times, the bank that gave a loan would say you have to have homeowners insurance because we don't want you to be in that situation. But even if you don't have—if you're a homeowner, and even if someone isn't forcing you to get homeowners insurance, it's a pretty good idea because a home is a pretty valuable asset.

There are going to be different types of homeowners insurance. Some will cover everything I just mentioned; some will cover if you live in a high flood risk zone. Some will cover everything but flood, and then you have to get a separate flood insurance.

I live out here in California. Sometimes a policy will cover everything but earthquakes, and then you have to get a separate earthquake insurance for that. But it's the same idea. If one of these really bad things happen, and you were to lose the house or lose the property inside the house, this insurance would have you covered.