Homeowner Insurance Coverages

What does your homeowner policy cover and how does it protect you?

Homeowner insurance protects your home and other personal assets from loss, plus it reimburses you for personal liability to others when they are hurt or their property is damaged. Most of the things that cause damage to your home are covered, but you should take note of what is excluded. Lenders usually require that you have homeowner insurance in order to give you a home loan.

Summary
  • Homeowner coverages protect: your home, other structures on your property, your possessions, living expenses if you are unable to live inside your home, and your liability to others that are hurt on your property.
  • Your deductible may have a significant impact on your cash reserves at the time of a loss.
  • Many common causes of loss are covered, such as theft and fire, but some are not, like flood and earthquakes.
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Homeowner Coverages

Basic homeowner insurance policies cover for your: home, other structures, personal property, additional living expenses, liability and medical payments for accidents.

CoverageWhat does it cover?How much are you covered for
DwellingPays for damage to your house and to structures attached to your house. This includes damage to fixtures, such as plumbing, electrical wiring, heating and permanently installed air-conditioning systems.The cost to rebuild your home.
Other StructuresPays for damage to fences, tool sheds, free-standing garages, guest cottages and other structures not attached to your house.10% of dwelling coverage limit.
Personal propertyReimburses you for the value of your possessions, including furniture, electronics, appliances and clothing, damaged or lost even when they aren’t on your property, such as those at an off-site storage locker or with your child at college.50% dwelling coverage limit.
Additional living expensesPays some of the additional living expenses you incur while your home is being repaired and you must live somewhere else. This covers expenses such as: relocation, housing, food and living expenses.”20% dwelling coverage limit.
LiabilityCovers your financial loss if you are sued and found legally responsible for injuries or damages to someone else.$100,000 to $500,000
Medical paymentsPays medical bills for people hurt on your property or hurt by your pets.$1,000 to $5,000

How much do you need?

In the event of a loss to your home by fire or other peril, the amount of coverage you need should equal the cost to rebuild your home. This is different from the market price of your home (which includes the value of your land), how much you owe on your mortgage, or the tax valuation. The right amount of dwelling coverage should cover the local construction costs and materials similar to what your home is built with. Insurance companies make every effort to get this number right so they can offer enough coverage while keeping their premiums low to compete with other insurers.

The majority of homes are insured on an “HO-3” policy, which offers you the widest range of perils that may damage your dwelling. HO-3 policies cover your home (Dwelling) and Other Structures at Replacement Cost, and your Personal Property at Actual Cash Value.

Replacement cost: The estimated amount of what it will cost to rebuild your home or repair damages using similar materials and with similar quality.

Actual Cash Value: The depreciated value of your personal property. It won’t be enough to replace everything you own with other brand new property but it does reflect the current value of your possessions.

Homeowner deductibles

Deductibles are the amount that you pay out-of-pocket in the event of a loss. Lower deductibles help by allowing you to have more cash to spend in a crisis—and a loss to your house is often such a time.

The deductible amount is the same regardless of the size of your loss. If you have a $30,000 loss and there is a $1,000 deductible, the insurance company will pay $29,000 for that loss. On the other hand, if you have a $200,000 loss with the same $1,000 deductible, your insurance company will reimburse you $199,000.

Deductibles are usually a dollar amount (Flat Dollar) but will be a percentage amount for perils such as Windstorms, Hurricanes, Earthquakes, and Floods. Note that some perils will be excluded from your policy. In the case of percentage deductibles, you should calculate it to understand what it means in dollars. For example, if you have $200,000 Dwelling coverage and a 3% deductible, your deductible amount is $6,000 (3% x $200,000). If you have a $30,000 loss and the same 3% percentage deductible, you still have the same $6,000 deductible and so will only be reimbursed $24,000 ($30,000 – $24,000).

Liability and Medical Payments coverages generally don’t have a deductible.

What’s not covered in Homeowner insurance?

A standard HO-3 homeowner insurance policy will protect against many of the hazards that might impact your home, including fire, windstorm, and theft, but it’s not everything to everyone. Below are some of the exclusions you are likely to find in your homeowner policy:

 

  • Flooding, including drain and sewer backup
  • Earthquakes, landslide, and sinkholes
  • Infestations by birds, vermin, fungus or mold
  • Wear and tear or neglect
  • Nuclear hazard
  • Government action, including war
  • Power failure

Some of these won’t pose any issue for you, but some might. Specialty Homeowner policies are available that cover Hurricanes, Earthquakes and/or Flood. Perhaps you aren’t obviously in a Hurricane zone or Earthquake area… but flood plains exist in every state. Consider where you’re living and make sure you’re protected!

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