What does the term "good neighbor" policy refer to in homeowners insurance?

The term "good neighbor" policy in homeowners insurance refers to a commitment to cover certain liability costs due to accidents involving neighbors. This concept embodies the idea that homeowners insurance not only protects the insured property but also provides a safety net for incidents that might occur on the insured's property that could affect those living nearby.

For instance, if a guest at the insured's home accidentally damages a neighbor's property or if someone is injured while on the insured's premises, the homeowners insurance can help pay for the resulting liability costs. This fosters a sense of community and responsibility among homeowners, underlining the importance of neighborly relations in safeguarding one another.

The other options do not accurately represent the essence of the "good neighbor" policy. A discount policy for friendly neighbors does not reflect an established insurance practice. Coverage for community events, while a positive aspect of these policies, is not what the term specifically indicates. Lastly, the term is not applicable to non-residential properties, as the "good neighbor" concept is particularly associated with residential homeowners' coverage.