Understanding Home Insurance Coverage

When shopping for a home insurance policy, many homeowners want to know what a standard home insurance policy provides. Keep in mind that though policies are customizable, a policy usually has certain standard elements which provide the costs that insurers will cover.

Interior and Exterior Damage

There are many causes of damage to the house. From fire to lightning and even vandalism, all of these events can damage a house. In the event of damage, the insurance company will compensate you. This may mean providing the funds to repair the house or even rebuild it if damaged beyond repair. The damage caused from floods, earthquakes, and poor home maintenance is typically not covered. If you want to have coverage for these areas, you can usually purchase additional riders if you want that type of protection. Additionally, structures on your property such as sheds may need to be covered separately.

Clothing, furniture, and appliances as well as most contents in the house are covered by your policy if they have been destroyed in an insured disaster. You could even purchase an off-premise coverage. This would provide payment if you lost jewelry or other items away from the house. There may be a limit on how much coverage you can receive though.

If you happen to own high-priced possessions such as fine art or antiques, you may want to purchase a rider to cover them as they will usually be limited in a basic homeowners policy.

Personal Liability for Injuries and Damages

As a homeowner, you have the risk of facing a lawsuit from others. This coverage can even include your pets. For example, if your dog bites a neighbor, regardless of the location, the insurance company will pay for the medical expenses. Other potential problems could be anyone who experiences damage on your property. When a person is injured while on your land, even through no fault of your own, you can face high lawsuits. This is usually included in a basic policy although make sure to look at the amount that's covered.

Hotel and House Rentals

If your experience damages to your home that does not allow you to live there, then your policy should cover the cost of renting a home or hotel. This may happen if your house is not livable due to repairs being done or the house being rebuilt. This part of insurance coverage is known as additional living expenses. It will cover rent, meals, an other incidental costs that you occur. While this protection is a good idea, policies typically have strict daily and total limits so review these and see if they are adequate.

Different Levels of Coverage

Although this overview covers the basic parts of a homeowners policy, it does not include the three basic levels of coverage offered. This is an important area of insurance to understand.

1. Actual Cash Value

This standard of insurance is going to cover the cost of the house in addition to the value of the belongings. It will deduct depreciation so you may not receive as much coverage over time.

2. Replacement Cost

A policy that outlines replacement costs will cover the actual cash value of the house and possessions without deducting for depreciation. This means that with replacement costs, a homeowner can repair or rebuild the home up to its original value.

3. Guaranteed Replacement Cost

This last type of coverage is the most most comprehensive. It will pay for whatever the cost to repair or rebuild a home, even if more than the policy limit. There is a ceiling typically about 25% higher than the limit. This is often recommended by insurance advisors but also increases the cost of insurance as well.