Homeowners Insurance Coverage

What Does Homeowners Insurance Cover?

What does homeowners insurance cover and do for you?  Homeowners insurance covers your home and possessions against most common but not all risks. There are several levels of coverage that vary by state.  Homeowners’ policies usually don’t cover damage caused by lack of maintenance, hurricanes, earthquakes, landslides, pollution or war, although additional policies or riders may cover these.

Home with umbrella denoting homeowners' insurancePolicies generally include:

  • Structure insurance will pay to rebuild your home if it’s damaged by covered events.  Outbuildings and garages are usually covered also.
  • Personal belonging coverage that will pay to replace all or part of any belongings that are damaged.
  • Liability protection if you are sued.
  • And additional living expenses if your home is damaged and you need to live somewhere else while it is repaired.

Homeowners insurance is generally available in different levels of coverage:

  • Actual Cash Value pays to replace your home or possessions minus a deduction for depreciation. So your sofa that was purchased for $300 in 1995 might not be worth much after depreciation.
  • Replacement Cost coverage pays to replace your sofa with a new similar sofa, so your sofa that was purchased in 1995 for $300 might be covered for $450 now. Of course, replacement cost coverage costs more.

What Isn’t Covered

What isn’t covered is sometimes more important than what is!  In order to be competitive, insurance companies issue basic policies with lots of exclusions.  Additional coverage for these exclusions is often available as add-ons or endorsements.  This includes most natural and weather events such as earthquakes, sinkholes, hurricanes, and mudslides.  Water damage is also often excluded from coverage.

Also, homeowner’s insurance generally doesn’t cover damage from neglect and failure to properly maintain the property, sometimes a difficult distinction.  For example, a roof leak caused by a covered event may be covered where a roof leak because of an aged or unrepaired roof probably won’t be.  Many lawyers earn a good living on this.

Most policies will exclude or provide minimal coverage for guns, jewelry, electronics, and boats.  Check your policy.

Homeowner’s Insurance and Mortgages

Most mortgage companies will require you to purchase homeowners’ insurance for at least the amount of the mortgage and name them as also insured beneficiaries.  They may purchase insurance if yours lapses.  You don’t want to do this because the insurance that they purchase will probably be overpriced, the costs are passed on to you, and the insurance covers only their interests.

Increasing your deductible might save you a bit on your premium. Say that your current coverage includes a $250 deductible. If you increase that deductible to $1,000, you might save 20 to 30 percent on your premiums.

Pay close attention to your policy limits. During the application process, your insurance company will determine a replacement value and insured amount. Most companies are honest with this, but some companies may use invalid figures. Try to avoid purchasing either too much or too little insurance. Remember that you’re dealing with construction costs which can vary greatly, but there’s no sense in insuring your home for more than similar houses sell for. On the other hand, if you don’t insure your home for enough, you’ll only receive the insured amount.