In short: Home insurance is voluntary insurance that covers the building and/or its contents against fire, water damage, theft, natural disasters and other risks named in the contract.
Simply put: For most families the home is their largest asset. Insurance helps rebuild after a major disaster. What is covered depends entirely on the contract. With a mortgage, the lender usually requires the property to be insured.
Example: A flat worth €90,000 is insured for €90,000. After a fire the damage is €30,000; the insurer pays it, minus any excess.
Watch out: Three traps — underinsurance (the sum insured is below the value), exclusions (earthquake or flood are sometimes separate cover), and assuming the bank's policy is the only option.
Example: Bulgaria — With a mortgage, the bank must accept a policy from another insurer if the cover is equivalent (Act on Consumer Credit Related to Immovable Property, Art. 12(3) — as explained by the Association of Bulgarian Insurers).
Check in your country — Ask the bank in writing whether you may bring your own policy with equivalent cover.
Source: Insurance Code (Bulgaria), Art. 389 (in Bulgarian) — https://www.fsc.bg/wp-content/uploads/2021/files/24426_file.pdf · Association of Bulgarian Insurers (in Bulgarian) — https://www.abz.bg/article/moga-li-da-izbera-sam-zastrahovkata-na-imota-pri-kredit-2454