Here’s the deal: Homeowners insurance covers your… If you’ve heard the acronym “CYA”, we’ll let you fill in the rest. While the value of what’s being covered depends on factors such as your house and what’s in it, the point of having a homeowners policy is to ensure you don’t lose out big if something unfortunate happens.
Obviously, the fine print gets much more formal than “CYA,” so keep reading to learn what homeowners insurance covers.
Homeowners insurance actually covers different things depending on your policy. Not every policy is written the same, and in this respect, it works a lot like car insurance. It always pays to read through your policy and ask questions of your agent if you’re not sure what’s covered. Otherwise, you could end up in the middle of a natural disaster or other unfortunate event and find out then that you’re the one shelling out for major repairs or replacements.
That being said, homeowners insurance does tend to cover some basic categories. Those include:
- Your dwelling. Your dwelling is the actual home—the building you live and sleep in. It also usually includes any attached structures, such as garages.
- Buildings on the property. Other buildings on the property may be covered, too. This can include pool houses, sheds, and unattached garages, for example.
- Personal property. It sounds like it refers to your property—the land and buildings. But this phrase actually means all the personal items and things you and your family own. Usually, you’re allowed up to a certain dollar value in reimbursements for losses related to personal property.
- Liability. Many policies include a certain amount of liability protection, which is what kicks in if someone is injured on your property and sues you for damages.
Homeowners insurance typically protects you in cases of losses associated with your main dwelling in the event of certain types of disasters or events. Theft, vandalism, wind damage, fire or lightning damage and even volcanic eruption are examples of things that could cause damage to your home that are covered under such plans.
The Insurance Information Institute notes that not all disasters and occurrences are covered, though. For example, flood and earthquake insurance is excluded in standard policies. That means you have to purchase separate insurance to cover yourself for such events—something people tend only to do if they’re in a known flood or earthquake danger zone.
Homeowners insurance also covers more than exterior damage. Policies usually have interior damage coverage too. For example, what if your pipes burst while you’re on vacation and you come home to a first floor and basement that are flooded. That’s not the same thing as a natural flood, and the damage is often covered under your homeowners policy.
Personal property coverage can be especially confusing. How does the insurance company know what items to cover? Do you need to report every purchase you make or take pictures of all your belongings to prove that you have them? In reality, the insurance doesn’t keep track of your belongings or really care how much they are worth. However, when it comes time to make a claim, you may need to be positioned to argue for the value of high-dollar items.
Personal property coverage typically comes in two types:
- Replacement coverage, which means the insurance company will reimburse you for the cost to replace something
- Actual value coverage, which means the insurance company will reimburse you for the actual value of something at the time it was lost in a covered event (taking into account depreciation)
Usually, replacement coverage is more straightforward and easier to deal with. You simply go out and replace the items in a reasonable way and your policy foots most of the bill. That being said, all personal property coverage has limits. Check your policy to see how much yours is; you may, for example, only have $30,000 in coverage. This coverage also only covers certain events, including theft and fire. If you simply misplace your items or damage them via misuse, your insurance company isn’t going to kick in.
Most homeowners policies have enough in personal property coverage that you could reasonably replace clothing, furniture, electronics, and other items if everything was destroyed by a fire or other event. Some things people don’t realize might be covered under this part of their homeowners policy can include trees, plants, and shrubs in the yard and some personal items not stored in the home or on the property.
However, if you have especially expensive items, such as jewelry or artwork, you may want to purchase additional insurance. It’s a good idea to have these items appraised so you can prove the value. If you say you have a ring worth $50,000 that was destroyed, the insurance company may want proof of that value even if you did buy an extended policy to cover that much.
Liability insurance protects you if someone gets hurt on your property and you are held liable for their injuries. You might think that your friends or family would never sue you if they fall through your porch or break their leg in your driveway, but they may not have much choice. Medical care is expensive, and their insurance company may insist on coming after you for the money—which is one reason tackle football games in the backyard may not be a great idea!
Liability insurance helps pay for lawsuit settlements and judgments for injuries you or a family member cause another as well as “faultless” accidents that occur on your property.
However, the liability limits on many homeowners plans default at around $100,000. It sounds like a lot of money, but if you’re named in a lawsuit, the damages could be much more than that. For this reason, many homeowners look into supplement or umbrella plans to extend their coverage—especially if they have equity in their homes or other assets that could be up for grabs in a settlement.
If you have a mortgage, it’s likely the bank will force you to hold homeowners insurance. If you own more than around 80% of the value of the home to the bank, they may even make you fold insurance premium payments into your mortgage to ensure the coverage is in force. This is to protect their investment: If something happens to your home, the insurance company pays the mortgage company first.
But even if you own your home outright, it’s a good idea to have coverage. Homes are expensive—often the most expensive thing people ever buy. Replacing one because the universe is having a bad day and aiming its anger in your direction simply isn’t possible for most people.
Homeowners insurance ensures you don’t have to worry as much about that.
As you can see, homeowners insurance is complicated. What does homeowners insurance cover? Only your hopes, dreams, security and the roof over your family’s heads. If you’re not covered already or if you want to ensure you have the right coverage, get a quote from LemonBrew today.