Home Insurance Coverage Explained - Buying a home is probably the largest single investment you will ever make, and home ownership brings about certain obligations, risks and responsibilities.
This is why insurance coverage is so important—it provides you with financial security by protecting the value of your investment and mitigating your exposure to legal liability.
Home owners are generally interested in getting the best insurance policy they can find for the lowest possible price.
But it’s about more than just cost—you need to ensure your policy provides the right level of protection for your needs and doesn’t have any critical gaps that leave you exposed.
CATEGORIES OF HOME INSURANCE COVERAGE EXPLAINED
Homeowners insurance is not simply protection for your house. A typical policy has six categories of coverage, including liability protection. Before you purchase a policy you need to understand what each of these actually provides. Each category is described below:
The main component of a home insurance policy is coverage for the physical structure of your house (your land is excluded). You should obtain enough insurance to cover the cost of rebuilding your home in the event it is damaged or destroyed by one of the perils named in your policy.
Coverage for Other Structures
A standard policy also covers structures on your lot that are not attached to your home, such as a shed, workshop, or garage. Coverage for detached structures is normally limited to 10 percent of your dwelling coverage.
Personal Property Coverage
Most home insurance policies provide coverage for your personal belongings up to a maximum aggregate amount, normally expressed as a percentage of the insurance value of your home. Typically this amount is in the range of 50 to 70 percent of your dwelling coverage.
This is normally more than sufficient for most people. You should perform an inventory of your belongings and estimate the total value to determine if this level of coverage is adequate or if you need more.
Most policies also include off-premise coverage, which means your possessions are covered even if they are not on your property at the time of loss or damage.
This is particularly important for items that are frequently taken offsite, such as bicycles, sporting equipment, cameras, and laptop computers.
In addition to having an aggregate limit, many policies also impose maximum limits for certain individual items, even if their value is well below your overall coverage.
For example, your policy may provide $100,000 in personal property coverage, but not more than $2,000 for any one camera.
If you have high-value individual items such as jewelry, expensive camera equipment, artwork or collectibles, it is recommended that you determine if you need an endorsement to obtain full protection for these valuables.
In practical terms, this means you need to notify your insurance company that you own these items and ensure they are specifically listed on your policy.
Liability coverage provides protection against lawsuits arising from bodily injury or physical damage on your property or arising from your property (for example, a tree in your yard falls over and damages your neighbor’s property).
It includes no fault medical coverage if someone is injured in your home. It pays for your defense in court and any money you are required to pay as a result of any injuries or damage sustained, up to your policy limit.
Coverage for Loss of Use and Additional Living Expenses
If you are unable to inhabit your home as a result of damage caused by a covered disaster or event, a standard homeowners insurance policy will pay for your hotel stay, restaurant bills, and even loss of income if you normally rent out part of your home, until your home is repaired.
Your policy may provide coverage for additional expenses, such as damage to trees and shrubs (generally excluding damage caused by wind and ice), debris removal, fire department charges, identity theft charges, and loss assessment.
COVERED PERILS AND EXCLUSIONS
Home Insurance Coverage Explained in short. You should ensure you are fully aware of all covered perils and exclusions before you purchase any policy. While it is nice to know a homeowners policy provides coverage for a wide range of losses you might experience, your policy is very unlikely to cover every possible loss.
Certain situations or events may be specifically excluded from coverage under the policy. For example, earth movement, intentional loss, neglect, nuclear hazard, power failure, and war are frequent exclusions. Earthquake and flood damage is also normally excluded unless you obtain an endorsement.
Read more about Insurance coverage types.