When you think of homeowners insurance, you probably think of a policy that responds when your house burns down, or if someone breaks in. Those things are typically covered under a homeowners insurance policy, but these policies cover those instances and so much more.
There are many types of insurance policies for personal insurance coverage, but the three basics are:
- Homeowners Insurance. This is a policy that most people who own homes do or should have to protect their home and their belongings.
- Renters Insurance. This is the policy that most people who rent homes do or should have to protect their belongings.
- Dwelling insurance. This is the type of policy that a homeowner should have on a house that they rent to others, or that is insured at another location such as a summer or vacation home.
This article will be focusing on just homeowners coverage. The sections of a homeowners insurance policy are denoted by a coverage letter, and they start with the property coverage.
Coverage A: Your House.
If you own a home, whether detached, semi-attached (a townhome or similar) or attached (a condominium) you should have coverage for the entire structure or the part of the structure you occupy. The amount of coverage is typically determined by an insurance (not market-value) appraisal, and may be written on a replacement cost or actual cash value basis depending on the age and construction of the dwelling. Replacement cost coverage is preferred, since you will want to replace your home should it be damaged or destroyed.
Coverage B: Other Structures.
In some cases, there may be another structure on your property that belongs to you but is not attached to the house. This structure may be a detached garage, a work shed, a carport, even a fence or wall. These are considered “other structures”. Most homeowners insurance policies set a limit for coverage under this section to 10% of the Coverage A amount. It is a good idea to check with your broker to make sure this amount is sufficient to replace any and all other structures that may be damaged or destroyed.
Coverage C: Personal Property.
Personal property is anything that is owned, used or worn by you or someone in your family. It may include clothing, books, furnishings, rugs, dishes, etc. If you were to turn your home upside down and shake it, anything that shakes loose is personal property. There are usually incremental limits for this coverage ($10,000, $25,000, and more). Your broker can help you select the limits of coverage that are right for your family. Please note that there are sub limits for some categories such as electronic equipment, firearms, jewelry and fine arts. Be sure to discuss with your broker whether the sub limits included in your policy will cover your special category items.
Coverage D: Additional Living Expenses/Loss of Use
This is not something homeowners usually think about when purchasing insurance, but this coverage can be quite handy in the event of a claim. Should your home become uninhabitable due to a covered cause of loss, Coverage D will cover expenses (up to a scheduled amount) to maintain the normal standard of living until the home has been repaired or replaced. This coverage may include hotel or other temporary rental placement for the family, among other expenses.
Coverage E: Comprehensive Personal Liability
Comprehensive Personal Liability insurance is probably one of the least understood coverage sections on a homeowners insurance policy, and it covers more than you might imagine. It is both premises liability for your home address (in case your clumsy neighbor trips over that tree root in the front yard and decides to sue you) and personal liability for you and your family away from home, whether you are walking your dog two blocks from home or playing golf on your family vacation. A good rule of thumb for comprehensive liability is the more the better. Consider it your built-in prepaid legal account.
Coverage F: Medical Expenses
Medical expenses are the homeowners insurance version of no-fault coverage. Take that clumsy neighbor who tripped over a tree root. If his medical expenses were minimal, medical expense coverage will pay for his doctor bills, and might even keep him from suing you. Keep in mind that there are limits to this coverage per person and per accident, so the coverage is not unlimited.
What Isn’t Covered
Every homeowners insurance policy has a number of exclusions to discuss, but there are two main hazards that should concern most home owners: flood and earth movement (earthquake). Neither of these are covered under a standard homeowners policy, so they require separate policies.
These are just the basics of homeowners policies, but there are many aspects of this coverage that can be secured to fit your needs. An annual insurance checkup with your broker is a good way to be certain that you have the coverage you and your family need.