If you own a home, you need to have homeowner’s insurance coverage. If you’re like most people, though, you’ve probably given little thought to the insurance you have. You may have shopped a few well-known homeowners insurance companies and went with the best rate. Or you might have just gone with the same company who insures your vehicles. When something happens, though, this can lead to unpleasant surprises if you discover that you didn’t quite have the coverage you needed. So what does homeowner’s insurance cover?
What is Homeowners Insurance?
Before we discuss what homeowners insurance covers, it helps to have a basic understanding of what a homeowners insurance policy is. Like all insurance, it is designed to protect the insured (that’s you) from financial hardship. Specifically it protects you from losses to your home itself and the possessions inside.
Homeowners insurance is what’s known as “multiple lines” insurance, which means that it includes more than one type of coverage. In addition to covering damage to your own property, it also includes liability protection in case you or a family member damages someone else’s property.
Is Homeowners Insurance Required?
Unlike auto insurance, there is no legal requirement to have house insurance. This doesn’t matter much for most people, though, since mortgage companies do require it. If you didn’t have it, it might be tempting to just “walk away” from your loan if something catastrophic ever happened to your house. From the mortgage company’s perspective, your homeowners policy is there to ensure that the mortgage will still be paid even if your house is destroyed.
If you’re one of the few people who buy a home outright, or you’ve already paid off your mortgage, there is technically no requirement for you to insure your home. Still, unless you’re willing to bear all the risk in the event something happens to your home, it’s really something you should have. Though it’s unlikely, consider what would happen if, for example, your home was burned to the ground. Would you be able to afford to rebuild? Can you afford to replace your belongings? Even if you don’t have a mortgage, homeowners insurance is probably still a smart investment.
What Does Homeowner’s Insurance Cover?
Now it’s time for the big question: What does home insurance cover? Short answer: It covers most of what you’d expect, and a few things you might not.
Longer answer: Most importantly for most people, it will cover the dwelling itself. Most homeowner’s insurance policies will also cover detached buildings like a tool shed, up to a specified percentage of the total insurance, typically 10 percent. Your personal belongings will also be covered, typically up to between 50 and 70 percent of the total insurance on the dwelling. As mentioned, liability protection will also be included; so will coverage for additional living expenses (ALE). ALE coverage helps with living expenses when you need to live away from home while your house is being rebuilt.
Which events are covered by homeowners insurance?
Beginning with the dwelling and detached buildings, events that are covered include:
Storms
Hurricanes, lightning, and hail can cause some pretty serious damage to your property. Here are the types of storm damage that will be covered by a typical policy:
- Damage from water and ice
In a serious storm, ice damage can be severe. Your homeowner’s policy will cover damage from ice and hail as a general rule. When it comes to water damage, not all types will be covered, and this will vary with different home insurance companies and different policies. It is important to review your policy and familiarize yourself with what’s covered. - Lightning and power surges
Your policy will probably cover fire or smoke damage if your home is hit by lightning. If lightning causes a power surge that damages your electronics, this may or may not be covered, so once again look at your policy to be sure. - Wind and fallen trees
Strong wind can rip shingles from your roof and blow over trees, especially when combined with heavy rain. Wind damage to your home and outbuildings is covered by most policies. If a tree falls on your house due to a storm, the damage is also usually covered by homeowners policies. - Hail
Hail is also capable of inflicting quite a bit of damage to your home, and this is more than likely covered by your policy.
Fire and Smoke Damage
Home fires can be devastating, not just to the structure itself, but to your belongings inside the home as well. Damage to your home due to fire will be covered, and it’s likely that your policy will include coverage for your personal belongings too.
Fires don’t just burn your stuff, of course; they also put out smoke, which can cause quite a bit of damage too. Fortunately, this is also covered under most policies.
Theft
Being robbed is a scary experience. No insurance will eliminate the fear and feeling of being violated that often comes with being robbed, though it is good to know that homeowner’s policies do include coverage for theft. There are limits to be aware of, so be sure to read the next section on personal property to help determine if you have the coverage you need.
Your Personal Property
If you’re like a lot of people, you’d be surprised at just how much stuff you have inside your home. There are the obvious things like furniture and appliances. You probably have some electronics too. Clothing is a big one that’s easy to overlook. And then there are all the little things like jewelry, not to mention all the stuff stored in your attic that you’ve forgotten about. Losing all this stuff can be quite costly without good insurance coverage, so it’s good to know that your homeowner’s policy includes coverage for personal items.
To make sure you have enough coverage, there is some homework to do here if you haven’t already. There is a limit to what your policy will cover, and when you’re getting a homeowners insurance quote you want to be sure you are quoted for the amount you actually need. The amount of personal property coverage should be approximately equal to the value of all personal property in your home. You will want to take a detailed inventory of what you own and what it’s worth, and talk to your insurance agent to discuss what is right for you.
Another important thing to be aware of is that, if you own any valuable items like jewelry or collectibles, they may not be fully covered. Your agent can help you decide whether you should add a rider to your policy to cover the more valuable items.
Trees and Plants
They won’t be covered for disease or neglect, but if your plants are killed by a fire or other covered event, they’re covered. Typically there’s a maximum per item of about $500 – check your policy for the exact amount.
Liability
While most people purchase homeowners insurance to cover their home and belongings, liability is another important component to a home insurance policy. If you ever have a guest who is injured on your property, you may be legally responsible for that person’s medical expenses if it’s determined that the accident was your fault. Liability coverage is intended to help with these expenses, and can also help with legal expenses if you are sued. In addition, it covers injuries and damage to other people’s property that is caused by you or a family member, so if Junior hits a baseball through the neighbor’s window, your insurance should cover it.
Additional Living Expenses
If something happens to your home that’s serious enough that you need to move out while it’s being repaired or rebuilt, it can get expensive. You’re probably already paying a mortgage, and now on top of that, you need to pay for a hotel or apartment. You might also be spending more on food, since you aren’t able to cook at home. Eating out is great, but the cost adds up fast. That’s what ALE coverage is for – to cover the costs beyond your normal living expenses.
There are limits to ALE coverage, and there might be a time limit as well. You don’t need to worry about your ALE benefits eating into the funds for rebuilding your home, though; the ALE limits are separate from the coverage that you have on your home, so using up your ALE coverage won’t reduce the amount paid to rebuild your home.
What is Not Covered by Homeowners Insurance?
A few of the things that aren’t usually covered have been mentioned already; here’s a little more detail about the specific things that homeowners insurance doesn’t cover.
Earthquakes
Homeowners policies don’t cover earthquakes. Yet, according to the Federal Emergency Management Agency (FEMA), losses in the U.S. due to earthquakes add up to $4.4 billion annually. You might be thinking that only the West Coast has to worry about that. While it’s true that most of the damage happens in California, Oregon, and Washington, there are also fairly high losses throughout the western and central U.S.
So your insurance won’t cover earthquakes, but what do you do if you live in an earthquake-prone area? Fortunately, there are earthquake insurance policies available and they are something you should consider. These policies are widely available in areas with lots of quakes, but in some states where earthquakes are less common earthquake insurance can be hard to find or even unavailable. If you live in such a state, but still think you might need it, the first step is to check with your current insurer. If they don’t offer it, you can check with your state’s Department of Insurance to find out what companies are licensed to provide earthquake insurance in your state.
Floods
It was mentioned earlier that not all water damage is covered by home insurance. Floods are an example of when you would not be covered. However, just as with earthquakes, you can purchase a separate flood insurance policy.
Even if you don’t live in an area prone to flooding, flood insurance can still be a good investment; floods can happen anywhere. In fact, more than 1 in 5 flood insurance claims are from lower-risk areas. Insurance companies do look at where you live to determine your risk of experiencing a flood, and this will be used when determining your rate. So you might pay less for your flood insurance and still have the coverage if you need it.
Expensive Items
Your personal items are covered, of course, and that includes the high-dollar items like art, collectibles, and jewelry. However, there is a “but” – there are limits on how much your insurer will pay for each item. If you have valuable items like these, you should talk to your insurance agent about adding a rider that will cover the full value.
Most people don’t like to think about insurance. It reminds them of all the bad things that could happen, and even though it’s needed, most would rather just get a policy that satisfies their mortgage companies and forget about it. The good news is, once you have the right coverage in place, you really don’t need to think about it all that often. Review your coverage once a year or so, and that’s about it. The important part of that statement, though, is, “once you have the right coverage in place.”
You’ve taken the first step in learning a little more about homeowners insurance. You now have a better understanding of what a homeowners policy usually covers, as well as what it doesn’t. You should also have a pretty good idea of how to determine what the “right coverage” is for you. With your newfound knowledge, you’re ready to take inventory of your property and figure out what it’s worth. That’s the most time consuming step, but is possibly the most important, so be thorough. Then, knowing exactly what coverage you need, you can go online or call a local insurance agent for a homeowners insurance quote. And whatever you decide on, you can be confident that you made a well-informed decision.
Ready to purchase a homeowners insurance policy that fits your needs and budget? Freeway Insurance can help. Request a free homeowners insurance quote online or over the phone at 800-777-5620 and compare rates for top companies in minutes.
