Introduction
Home ownership carries with it a number of responsibilities and hazards. One of the most important protections available for home owners is homeowners insurance. This kind of insurance is meant to provide protection both for your property and liability so that you remain at ease should anything unexpected occur like fires, storms, or theft. However, knowing what exactly your homeowners insurance policy provides coverage for, and what it does not provide coverage for, can be problematic. This in-depth guide will cover the different elements of homeowners insurance, discuss what is generally included in a typical policy, and detail the exclusions that you should know about. If you are a new homeowner or simply wanting to get a better handle on your policy, this guide will show you the ins and outs of homeowners insurance.
What Is Homeowners Insurance?
Homeowners insurance is a policy that protects your home and belongings from loss or damage due to certain risks and perils. The coverage typically includes protection against fire, theft, vandalism, and certain types of weather-related damage, as well as personal liability coverage in case someone is injured while on your property. Homeowners insurance is not mandatory by law but is typically a prerequisite from home lenders, particularly if you have a home loan. Getting this policy assures you of being financially secure in the event of an accident or calamity.
A typical homeowners insurance policy will insure your dwelling, personal property, liability, and extra living expenses if your home is not habitable as a result of a covered loss. Although most policies cover a variety of incidents, it’s wise to thoroughly examine your individual policy to know precisely what is included and what is not.
The Components of a Homeowners Insurance Policy
Homeowners insurance policies consist of a number of main elements that interplay to offer a complete safety net. The main elements of protection generally consist of the dwelling, personal property, liability, and additional living expenses insurance. Here is a closer examination of these components:
Dwelling Coverage
Dwelling coverage is the section of your policy that insures the physical building of your home. This includes the walls, roof, floors, windows, doors, and anything that is fixed to the house, like built-in cabinets, countertops, and plumbing. If your home is destroyed or damaged as a result of an insured event, dwelling coverage will cover the cost of repairs or rebuilding.
In addition to fire and storm damage, dwelling coverage also generally includes coverage for vandalism and some forms of weather damage, like hail or windstorms. But here’s the thing: not all natural disasters are covered by a typical homeowners insurance policy. More on that below.
Personal Property Coverage
Personal property coverage shields belongings in your dwelling, like furniture, electronics, apparel, and personal items. When your things get damaged, ruined, or swiped under an insured cause of loss, this section of the policy will pay for its repair or replace the lost amount. For instance, when a fire burns up your television set or thieves rob your laptop through a burglary, the personal property coverage will provide funds to replace such items.
But note that personal property coverage can have limitations on certain high-value items, like jewelry, artwork, collectibles, or musical instruments. If you possess items that are especially valuable, you might need to buy extra coverage or a rider to fully cover them.
Liability Coverage
Liability coverage will cover you if a person gets hurt on your premises or if you inadvertently damage another person’s property. The kind of coverage usually stands if a person slips and falls on your driveway or if your pet harms a person while on your property. Liability coverage may pay for medical costs, attorney fees, and any repair bill incurred in injuries or damages resulting from you or your family members.
For instance, if a house guest at your residence stumbles over a stray rug and ends up with a broken arm, liability coverage can assist in payment of their bill. Likewise, if your little one smashes a neighbor’s window playing catch with a ball, liability coverage will assist with the cost of the break.
Additional Living Expenses (ALE) Coverage
If your residence is rendered uninhabitable because of a covered loss—like a fire, storm, or other catastrophe—additional living expenses (ALE) coverage will assist in paying for temporary living costs. This may be hotel rooms, restaurant food, and other necessary costs until your home can be repaired or rebuilt.
This type of insurance protects you from incurring financial loss due to the expenses of staying away from home as repairs are undertaken. ALE coverage is usually limited in some way, so make sure to read your policy to know exactly what’s included and for how long.
What Is Covered by Homeowners Insurance?
A typical homeowners policy insures for a vast number of perils, including damage to the home, theft, liability, and others. Here are some of the most general events and hazards that are commonly insured in a standard policy:
Fire and Smoke Damage
Fire damage is one of the most common claims made under homeowners insurance policies. If your home is damaged or destroyed by fire, your dwelling coverage will help pay for the repair or rebuilding costs. Additionally, personal property coverage will typically reimburse you for any belongings that were lost in the fire, such as furniture, electronics, and clothing.
Smoke damage is also a frequent problem homeowners experience following a fire. Although a fire might be put out immediately, the smoke may leave extensive damage on walls, furniture, and other personal belongings. Most homeowner insurance policies include coverage for smoke damage under the fire coverage.
Theft and Vandalism
Another common peril covered by homeowners insurance is theft. If your home is burglarized or your property is stolen, your personal property coverage will help replace your stolen belongings, such as electronics, jewelry, or clothing. Additionally, if your home is vandalized—such as when someone damages your windows or walls—dwelling coverage will typically pay for the cost of repairs.
Wind and Hail Damage
Most homeowners policies will cover damage resulting from windstorms and hail. This may encompass damage to your roof, windows, siding, and landscaping. If your house is hit by a severe storm that damages the structure or personal property, your dwelling and personal property coverage will usually pay for repairs or replacements.
Water Damage from Burst Pipes
Water damage due to a burst pipe, faulty appliance, or plumbing problem is usually included in a homeowners insurance policy. For instance, if a pipe bursts in your house and you have water damage to your walls or floors, your policy will probably pay for the repairs. Water damage due to flooding from an outside source, like a storm or rising river, is usually excluded unless you have additional flood insurance.
Liability for Injuries or Property Damage
Liability coverage keeps you safe if a person is hurt on your property or if you accidentally damage someone else’s property. For instance, if a guest slips on your stairs and gets hurt, liability coverage will pay for their medical bills and any legal costs. Likewise, if your kid accidentally breaks a neighbor’s fence while playing, liability coverage will pay for the repair.
What Does Homeowners Insurance Not Cover?
Although homeowners insurance provides comprehensive protection, there are a few important exclusions that homeowners should know about. Knowing these exclusions will prevent surprises and make sure you have the proper coverage for your situation.
Flood Damage
One of the largest omissions in homeowners insurance policies is flood damage. Homeowners insurance doesn’t cover flood damage, no matter what causes it: heavy rainfall, rising rivers, or storm surges. If you reside in a flood-prone area, it is crucial to buy additional flood insurance from the National Flood Insurance Program (NFIP) or a private insurance company.
Earthquakes and Other Natural Disasters
Earthquakes, landslides, and other seismic activity are usually not covered under standard homeowners insurance policies. If you reside in a seismically active area, you might have to buy additional earthquake insurance. Some policies might provide optional coverage for some natural disasters, but it is not necessarily included in basic coverage.
Maintenance Issues and Wear and Tear
Homeowners insurance does not cover damage due to general maintenance problems or the natural aging of your home. For instance, if your roof leaks because it has not been maintained, or your water heater fails after years of use, your insurance will not pay for the repairs. Homeowners are tasked with keeping their property in a condition that prevents such damage from ever happening.
Pest Damage
Pest damage, including damage from termites or rodents, is not usually covered under homeowners insurance. If your house is infested with pests that result in structural damage, you will usually have to pay for the repair cost and pest control treatment yourself.
High-Value Items
Standard home insurance policies tend to have limits on covering high-value items, like pricey jewelry, art, or collectibles. If you possess valuable items, it’s wise to look into purchasing extra coverage or a rider to make sure that these items are completely covered. Without this added coverage, you might not be completely reimbursed in the case of a loss.
