Homeowners insurance protects from costly repairs or replacement of your property, including personal belongings that have been damaged in an incident on your premises, as well as liability protection should anyone become injured while on it.
Homeowner policies provide coverage tailored to fit the unique needs of each homeowner, and many insurers provide discounts based on having good credit scores and claim-free histories.
1. Coverage on a “Named Peril” Basis
Many policies offer coverage based on “named perils”, which only addresses losses caused by those specifically named in their policy, such as fire, wind damage, and theft. This form of policy coverage tends to be cheaper than all-risks or broad-form homeowner policies.
Common named perils include earthquakes, volcanic activity, lightning strikes, and windstorms; however, not all insurers cover all these risks.
Open perils coverage protects your belongings against all losses not specifically listed as excluded in the policy, such as sewer or drain backup and mold growth.
2. Coverage on an “Open Peril” Basis
Homeowners’ policies with open peril coverage (HO-5 for instance) provide more comprehensive protection to both your dwelling and personal property. Such an open peril policy covers you in case an event that was not specifically excluded in its terms occurs — for instance if an alien spaceship crashes into your roof and destroys it, repairs would likely be covered by the insurance company.
However, your insurer typically excludes damage caused by earthquakes and floods and does not cover wear-and-tear or poor maintenance issues. To address these gaps in coverage you can purchase “actual cash value” or “replacement cost coverage,” which reimburses damaged items based on their actual values at depreciation over time.
3. Replacement Cost Coverage
Policies often rely on market value as the basis for their coverage; this could leave you shortchanged should a claim arise, so replacement cost coverage is often better value for your dollar.
Over time, rebuilding costs for your home may rise as a result of factors like labor and material increases, changes in zoning requirements or building codes, and inflation. A “guaranteed replacement cost” policy protects from these fluctuations at a more reasonable premium price.
Most insurers provide this coverage through an “inflation guard.” This feature automatically adjusts your dwelling limit based on current construction costs when renewing your policy.
4. Personal Property Coverage
Personal property coverage (also referred to as Coverage C in home policies) provides funds to repair or replace belongings damaged, destroyed, or stolen by an insured event. A standard homeowners policy typically offers this protection equivalent to a percentage of its limit.
Make a list of all your possessions to accurately assess and insure them, and consider adding jewelry, art, and high-value electronics as endorsements, floaters, or riders in your home policy (this option may not be available in all states).
5. Liability Coverage
Liability coverage in a homeowners policy covers medical bills and property damage caused by you or members of your household to third parties, including legal expenses if sued over an event covered by the policy.
Other structures coverage provides you with protection for any detached buildings on your property that aren’t attached to your house, like sheds and fences. It usually covers 16 disasters or perils similar to dwelling coverage minus your policy’s deductible amount.
6. Umbrella Coverage
Umbrella coverage protects you against liability settlements that exceed the limits of your homeowners, auto, or other policies. It’s often affordable and available from the same provider who issued these policies.
Liability insurance protects you against lawsuits brought forth by bodily injuries to family members and pets as well as property damage claims from accidents like your dog biting the mailman on a walk, or your daughter punching another girl in school. Furthermore, this coverage could cover you for defamation, slander, and libel claims as well.
Mortgage companies usually mandate homeowners insurance as part of the agreement; but, regardless, it would be wise to protect yourself with this type of coverage even if you do not currently have one.
7. Flood Coverage
Home insurance does not generally cover flood or earthquake damages; however, coverage may be available through the National Flood Insurance Program.
Most home policies provide both building and contents coverage. Building coverage typically covers the total costs associated with repairs or rebuilds up to the policy limit; while content coverage typically protects furniture, appliances, and personal belongings.
Location plays an integral part in determining what kind of flood insurance coverage a home needs, with more risky areas requiring the purchase of separate coverage as a condition for mortgage loans. Furthermore, mortgage providers often mandate this coverage as part of the loan agreement terms.
8. Severe Weather Coverage
Homeowner policies differ depending on your provider, but certain standard elements should always be covered. Before any severe weather event strikes, it is wise to read through and discuss your policy with your agent.
Home insurance policies typically cover damage done by lightning; however, some policies may limit coverage or exclude it depending on whether gutters have been properly installed and maintained. Homeowners insurance may also exclude damage caused by negligence or lack of maintenance – it is therefore wise to review your policy to understand further details.
Homeowners in high-risk areas often purchase separate “wind” and/or “tornado” insurance policies to protect them from weather events that aren’t covered under standard home insurance policies, such as tornados.
9. Additional Living Expenses
Most homeowner policies offer additional living expense (ALE) coverage, or loss of use reimbursement, to reimburse policyholders in case their home becomes so damaged they are unable to live there anymore. Specific limits and details vary by insurance carrier.
ALE coverage covers additional living expenses while your home is being repaired following a covered loss, such as food and lodging expenses. As this coverage has a set dollar limit, it’s essential that receipts be kept to ensure it doesn’t go beyond its total spending limit before it is fully restored.
