Home insurance is a requirement of your mortgage. How much coverage you get and from which company is up to you. Considering your home is your pride, joy, and most cost-intensive asset, you should be willing to invest in homeowners insurance to protect your home and your finances when you need to claim. Unless you want to end up holding the bag if anything were to happen to it, expanding your knowledge on homeowners insurance is necessary.
Key Takeaways:
- Home insurance typically covers damage to the property, theft of items of possessions, and personal liability should someone be injured in the home.
- You can increase your home insurance by using endorsements.
- The coverage you have will determine how much you get in the event you claim.
What a Home Insurance Policy Covers
Home insurance policies will cover the following five points to some degree, depending on the policy you have. When reviewing your policy, you should pay close attention to what you’re receiving for each and what factors would make you ineligible to claim.
Damage to the Primary Dwelling
Dwelling coverage covers the primary structure on your property: the main home and any attached buildings like a garage, porch, or deck. Built-in appliances and fixtures are also covered as part of dwelling coverage.
The walls, doors, roof, floors, windows, and other structural components are covered by dwelling coverage.
Primary dwelling covers internal and external damage to the property caused by vandalism, lightning, fire, earthquakes, and other natural and man-made disasters, provided they are within the scope of what your policy covers.
Damage to Other Structures on the Property
Sheds, detached garages, fences, and accessory dwelling units are described as “other structures” on the property. These units have coverage against the same damage and disasters permitted in your dwelling coverage.
Loss or Damage to Personal Possessions
Personal property coverage covers your belongings 一 clothes, furniture, appliances, electronics 一 items stored in the home but not built into the building.
These items are also typically covered by the same events listed in your policy.
Rentals and Hotel Stays While Your Home is Inhabitable
Should your home become inhabitable because of an event covered by your home insurance policy, the cost of a hotel or rental will also have coverage. This is known as “loss of use” coverage and only comes into effect if your home is undergoing repairs due to a covered disaster.
Besides hotel stays, other expenses you incur — like meals — will also have coverage.
Personal Liability Should an Injury Occur on Your Property
Should someone get injured on your property, your home insurance will cover the medical expenses and other costs associated with the injury, provided the liability falls to you.
If, for example, an electrician is electrocuted because of faulty wiring completed by a previous electrician, the electrician responsible for installing the wiring would hold liability, and your insurance won’t pay.
Liability coverage also kicks in if your home is damaged due to neglect.
Increasing Your Coverage With Endorsements
Even if you have a comprehensive home insurance policy, there are damage claims your insurance policy won’t cover, including damage caused by an act of war, power failure, flooding, earthquakes, infestations, nuclear hazards, and wear and tear.
If you require coverage from these events, you need to expand your home insurance policy with an endorsement.
An endorsement is a form of supplementary cover that enables you to enhance your insurance coverage by covering specific items or claims.
With an endorsement, you can cover valuable items that aren’t typically covered by your insurance; items like jewelry, artwork, or instruments form part of this coverage.
You can also cover elements of the repair or rebuild that have not been stipulated in the policy. Bringing the rebuild up-to-code through ordinance or law coverage or getting service line protection, which ensures you receive a payout in the event damage occurs to service lines you’re responsible for, are examples of endorsement cover.
How Much Will You Get When You Claim From Your Home Insurance?
The amount you’ll receive when you make a claim depends on two things: your deductible and your coverage.
Before your insurance company pays out any claim, you’re on the hook for the deductible. Once a claim exceeds the deductible, your insurer steps in to pay the remainder.
How much they pay out after you’ve paid the deductible depends on which of the three levels of homeowner insurance coverage you have.
Home insurance typically falls into three categories: actual cash value, replacement cost, and guaranteed replacement cost.
Actual Cash Value
A cash value policy covers items 一 including your home 一 for the cash value at the time the damage occurs and not what it was when you bought or acquired the item.
Replacement Cost
Replacement cost policies cover the worth of the items without taking depreciation into consideration.
Guaranteed Replacement Cost
Guaranteed replacement cost allows room for inflation and cost fluctuations, typically allowing you to replace the item or rebuild your home at current market rates, not at the rate it was when you acquired the item.
For west coast homeowners, plagued by fires and crime 一 and litigious visitors to your property 一 assessing your homeowner insurance coverage should be part of your annual home maintenance.
Check to see what events and disasters you’re covered against, your level of coverage, and discuss with your insurance broker the possibility of supplementing events not covered by your policy.
While coverage for fires and crime goes without saying, do you have coverage against rioting, earthquakes, or other threats that 一 may not seem necessary now, but 一 that experts have warned could be on the horizon?