Homeowners Insurance Table:

What does homeowners insurance cover

Homeowners insurance covers four major areas:

A typical home insurance policy covers four distinct areas: the structure of your home, personal belongings and other contents in your home, temporary living expenses if you are displaced, and liability protection. If you are a tenant, you will need landlord insurance, and your renter should consider getting their own renters insurance policy — a standard homeowners policy will not suffice.

As with any insurance policy, there are limits and/or exclusions, so it's critical that you familiarize yourself with them.

Dwelling Coverage:

Dwelling coverage protects your home's main structure from specific hazards or perils. Windstorms, lightning, snowstorms, fires, accidental water damage, falling objects — such as trees — and even vandalism are examples of these. It is important to note that some insurance companies may provide free additional protection, such as septic tank protection, whereas others may charge you a fee.

Dwelling coverage can also include damage to detached structures on your property, such as a shed, garage, fence, or gazebo, for “about 10% of the amount of insurance you have on the structure of the house,” according to Janet Ruiz, director of strategic communications at the Insurance Information Institute.

However, some homeowners insurance policies may not cover detached structures in your home, instead offering them as an add-on, so make sure to inquire about availability before signing up.

Types of Dwelling reimbursement policies:

To get the most out of your home insurance policy, you must first understand the various reimbursement types available in the market. If your home or personal property is damaged, not all policies will reimburse you the same amount of money that you lost.

Actual cash value, replacement costs, and guaranteed replacement cost/value are the three types of reimbursement:

• Actual cash value: compensates you for any property damage by deducting the depreciated value of your personal property. This means that if your sweater or home burns down, you will be reimbursed for less than what you paid for.
• Replacement cost policy: reimburses you for the full value of your home or personal property, regardless of depreciation.
• Guaranteed replacement cost/value: an add-on to dwelling coverage sold by insurers that is available regardless of your policy's reimbursement form. It guarantees that your home will be rebuilt completely, but only if the damage to your home results in a total loss.

You may believe that choosing a replacement cost policy over actual cash value coverage is the best option, but it may not be the best option for those who are financially strained.

Because replacement cost plans pay more, their premiums and deductibles are typically higher. You won't have to worry about being reimbursed at a depreciated value if you can afford one. If you can only afford an actual cash value policy, you can be assured that your premiums will be lower than those of other policies.

If you live in a natural disaster-prone area, such as California or Florida, a guaranteed replacement cost/value add-on is ideal.

Personal Property Coverage:

Personal property coverage is included in your homeowners insurance policy and protects your home's contents from any type of damage that dwelling coverage covers. This includes coverage for fires, windstorms, and accidents, as well as theft.

The amount of coverage for each item varies by insurer, but typically ranges between 50% and 70% of the amount of insurance you have on the home's structure. If you file a claim, you may be required to provide evidence of your belongings to your insurance provider.

Loss of Use Coverage:

Temporary living expenses are covered under loss of use coverage while your home is being remodeled or rebuilt following an accident or disaster. These expenses include hotel bills, meals, public transportation, gas costs, and other specific living expenses specified in your policy. Many insurance companies set reimbursement limits based on the total amount of property coverage on the home, which ranges from 20 to 50 percent. A $100,000 insured home with a loss of use limit of 30% will receive up to $30,000 to cover temporary living expenses.

If you rent out a portion of your home, most loss of use policies will also cover the rent you would have received from your tenant while your home is being rebuilt.

Personal Liability coverage:

A standard homeowners insurance policy protects you financially from liability by covering physical harm to anyone who does not live in your home. This includes compensation for lost wages as well as medical expenses incurred as a direct result of the accident.

Suits for bodily harm or property damage caused by you or family members are also covered. It covers the costs of defending you in court as well as any court awards, up to the limit of your policy.

Liability limits typically begin around $100,000; however, “we recommend looking at your assets to determine how much coverage you need,” according to Janet Ruiz. “If you have a million-dollar home, you probably want a million-dollar liability policy.”

What Does Homeowners Insurance Not Cover?

What dwelling coverage won’t cover

The dwelling coverage in a standard home insurance policy does not cover damage to your dwelling or detached structures caused by a flood, earthquake, or normal wear and tear. As a result, if your home is in a flood or earthquake-prone zone, your mortgage lender may require you to purchase flood or earthquake insurance.

The National Flood Insurance Program (NFIP) of the federal government, as well as some private insurers, offer flood insurance. It usually costs around $700 per year, but premiums vary depending on your property's elevation and other flood risk factors. FloodSmart.gov provides price quotes.

Lack of maintenance is another factor that insurance companies look at, because it is your responsibility as a homeowner to keep your home in good condition. Water damage caused by poor pipe maintenance, for example, will not be covered, nor will mold that grows as a result of non-accidental water damage.

Termites, roaches, and other pests are also not covered, as pest control services are available. Intentional damage, such as breaking a window by throwing a rock at it, is also not covered.

Finally, while having an older home does not necessarily make it impossible to obtain homeowners insurance, it does increase the insurer's risk. Premiums will most likely be higher than for newer construction.

What property coverage won’t cover

In terms of personal property coverage, expensive possessions such as jewellery, art, or collectibles are not covered under standard homeowner's insurance, though some insurance companies provide limited coverage for these items — typically up to $1,000 or $2,000 — under a basic insurance policy.

You'll need to have these items professionally appraised and purchase a special personal property endorsement or floater for your homeowners insurance policy to insure them to their full value. Rates vary by provider, but you should expect to pay about 1% to 2% of the item's value. A $5,000 engagement ring, for example, would most likely cost about $50 per year to insure.

Personal belongings damaged by natural disasters are not covered by personal property insurance because they are covered by a separate natural disaster insurance policy. Keep in mind that this is not the same as a home warranty, which covers major appliance repairs due to normal wear and tear.

What loss of use coverage won’t cover

Living expenses incurred as a result of your home's ordeal will not be covered because you no longer need the coverage. However, because loss of use coverage extends beyond the term of your policy, your insurer must continue to pay your expenses until your home is built or the policy's cap is reached.

What personal liability insurance does not cover

Finally, there are only two exclusions to personal liability insurance: it does not protect the people who live in your home from accidents or harm, and it does not cover intentional damages. For example, if your neighbor pays you a visit and slips on the stairwell, breaking his ankle, personal liability would cover his medical bills. However, if you caused the accident by purposefully pushing your neighbor, your insurer will deny your claim.

Important Facts to Consider When Choosing Your Policy Coverage

When it comes to homeowners insurance, there are several factors to consider: never buy less coverage than you actually need, and be aware that providers frequently offer other insurance products as add-ons to complement their policies.

First and foremost, you want your homeowners insurance to be as effective as possible. In the event of an emergency, try to obtain as much coverage as possible to rebuild your home and replace as much personal property as possible. This can be accomplished by going all-in on your insurance or by selecting standard or low-premium policies and supplementing them with coverage add-ons such as a guaranteed replacement cost dwelling add-on.

In terms of personal property, if you have a large number of valuable items in your home, such as a valuable coin collection, you should consider an enhanced personal property add-on to protect your personal property up to its intended value, not less.

When it comes to personal liability, you should always consider getting enough coverage to protect all of your current assets, such as your home, personal property, and potential future earnings. The reasoning is that if someone is seriously injured in your home, you will almost certainly have to pay their medical bills. If you are then sued, you will have to pay more money.

Your personal liability policy, like your personal property coverage, has limits and will not cover all legal expenses. To avoid losing your home or personal property in a potential lawsuit, make sure that your most valuable assets are covered by your policy.

There are numerous add-ons available for your homeowners insurance. These can help you tailor your policy to your specific needs, but they come at an additional cost per add-on. Assume you select "Actual Cash Value" for your dwelling coverage reimbursement because you want to ensure that your home is completely rebuilt in the event of a total loss. If your insurer offers it, you can get a guaranteed replacement cost/value add-on to cover your home without going overboard on insurance.

Finally, see if you can benefit from policy bundling – you may be able to obtain discounts if you purchase your homeowners policy from the same insurance provider that provides your auto insurance.