- Homeowner's insurance protects more than just the dwelling structure.home sweet home image by David Dorner from Fotolia.com
A home is the biggest investment most people ever make, so it's important understand what your homeowner's insurance policy actually covers. The basic form of standard homeowner's insurance is defined by the Insurance Services Office, and policies typically don't differ much between companies, though rates often do. Modified forms of homeowner's insurance also exist for condominium owners and renters who do not have to insure the structure in which they live.
- The main function of homeowner's insurance is to protect the primary dwelling of your home up to the policy limit, which should be at least the entire reconstruction cost of the home. Basic policies limit coverage to 10 different types of loss, including fire and burglary. Broader forms of homeowner's insurance protect against more stated perils, or protect against all causes of loss except those specifically excluded by the policy. The insurer pays to repair or replace your home if it is damaged or destroyed by a covered cause of loss.
- Any structure on your property not attached to the primary dwelling is considered a separate structure and has coverage under your policy up to the stated policy limit. If you have several of these structures, like a detached garage, shed, or fire pit, you can increase the limit by paying additional premiums. Separate structures are protected against the same causes of loss as the primary structure.
- Your personal belongings are also protected by your homeowner's insurance, up to the policy limit. Your belongings include essentially everything inside the home that is not attached to it. Many companies put limits on certain types of property, however, so read your policy to verify you have the coverage you need. Common restrictions exist for jewelry, fine art, gun collections, cash and securities. Some companies permit you to increase limits on these items for additional premiums.
- Settlements for the dwelling, separate structures and contents are made according to the terms of the policy. By default, these settlements are made according to actual cash value, meaning the items are depreciated according to age and condition at the time of loss. An actual cash value settlement is not typically large enough to replace the damaged items. For additional premiums, you can endorse your policy to include replacement cost. This allows you to purchase new items to replace the damaged ones, regardless of market value.
Loss of Use
- Standard homeowner's insurance comes with loss of use coverage, sometimes called additional living expenses. When your home is uninhabitable after a covered loss, your insurance company provides temporary shelter for you and your family during repairs. This shelter should provide a similar standard of living to your insured home.
- Your homeowner's insurance policy covers your personal liability as well. This pays for damages for which you are legally liable after a loss, subject to the conditions of the policy. Typical liability exclusions include losses caused by a motorized vehicle and those caused intentionally. Liability typically covers injuries sustained on your property and damage you cause to others while off your property, such as while riding your bike, as well as the legal costs involved in settling subsequent cases. Minor no-fault medical coverage exists to pay for small injuries without assigning negligence.