What Does Homeowners Insurance Cover?

homeowners insurance coverage
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Life is uncertain, and that’s why it’s good to have an insurance policy on your home. Homeowner's insurance isn’t a luxury; it's a necessity.

Beyond the protection, most mortgage companies won't give you a loan unless your home is insured. 

Homeowners insurance covers the dwelling, personal property, and additional living expenses. It also covers medical payments and personal liability. Some policies offer a more robust experience with additional coverage for an extra fee.

This article gives a general overview of everything that homeowners insurance would cover and what you’ll get out of homeowners insurance.

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6 Basic Things Every Homeowner’s Insurance Policy Should Cover

Homeowners insurance policies should cover all the basics, with a few additional options should you need them. Any damage to your home, theft, or destruction of an outbuilding due to weather damage should all be covered by your policy.

Dwelling Coverage

Under dwelling insurance, the insurance company will cover the cost of repairing the damage that happens to the physical structure of your house.

While dwelling insurance covers a lot, it doesn’t cater to all kinds of damage. For example, if an earthquake or lack of maintenance causes damage to your house, the insurance company won’t be liable.

It would be best to confirm which hazards the plan will cover. 

Personal Property Coverage

You probably have things in your house that are expensive and valuable. Jewelry, furniture, and home electronics might be included under valuable personal property.

Under personal property insurance, everything in your home will be covered.  However, the policy of open peril and named peril dictate that the insurance won’t cover every kind of damage or loss. 

If 'destruction by pet' isn’t mentioned on the "named-peril policy," then the insurance company isn’t obligated to pay you for damages caused by pets. 

Open peril, on the other hand, covers anything that could happen. 

Additional Living Expenses Coverage

You may need a temporary living arrangement if you get displaced from your home by fire or flood. Additional Living Expenses insurance is the part of the homeowner's insurance that covers living expenses outside your home in case of an emergency.  

Any cost incurred during your temporary living will be taken care of, including laundry, dining, storage, moving costs, pet boarding, or even furniture rental.

This usually accounts for 10%-20% of the total policy.

Personal Liability Coverage

Let's say that someone visits you, and they slip and break an arm. Now they want to sue you for damages, and they want you to pay the medical bills.

Personal liability insurance covers this kind of situation.  The insurance company will pay for any legal or medical fees incurred from a physical injury for which you’re responsible.

Personal liability insurance will cover the following: 

  • Lawsuits that arise from an accident.
  • Bodily injury to an individual on your property.
  • Personal negligence leading to property damage. 

While this is somewhat limited, a personal umbrella liability covers many more scenarios.

Medical Payments Coverage

Medical payments coverage, also known as coverage F, helps pay the medical fees of anyone injured on your property. This coverage doesn't just cover injuries on your property but also extends to a defined radius. 

So if your dog were to attack a passerby on the sidewalk, they might want to sue you. You can avoid a lawsuit by showing a willingness to take responsibility for the situation.

You have to trigger the medical payments coverage, and they could get up to $5000 for treatment.  If the medical bill exceeds $5000 or the amount stated on your policy, the difference will have to be paid out of pocket.

Other Structures Coverage

Many people have a pavilion, swimming pool, garage, or a fence. While dwelling insurance doesn’t cover these effects, they’re protected by other structures' coverage

If the named peril were to damage your garage, you'd get roughly 10% of the homeowner's insurance to cover the bills. I’ve given an overview of the basic coverings that you can expect from any homeowner's insurance policy

Yet, if you feel that the standard plan isn’t enough protection, you have the option to buy add-on coverage. These add ons are known as endorsements.

Endorsements on a Homeowner’s Insurance Policy

If you have specific needs, sometimes it might be necessary to purchase additional coverage for your home. There are lots of add-ons you can consider, and cover anything from water damage and identity theft to natural disasters.

Here are a few examples of endorsements you can add to your homeowners insurance policy:

  • Water breakup coverage, also known as sewage coverage. If water from drainage or sewage damages your home or personal property, it offers protection. 
  • Service line coverage covers expenses related to repairing or replacing service lines. Service lines are underground utility pipes that supply water, electricity, or cable to your home. 
  • Identity theft coverage protects against the consequences of identity theft. This kind of fraud can have far-reaching consequences, such as losing lifelong savings. Identity theft coverage helps cover the loss incurred from fraud. 
  • Home business coverage is also known as in-home business coverage. This endorsement offers a deeper layer of personal property coverage by protecting you from the effects of damage to your home business. The coverage will reimburse you for the loss of essential documents and equipment. 

How Much Will I Get From My Homeowners Insurance Policy?

Most insurance policies will provide 50-70% of losses within certain aspects of the policy. However, there is no universal answer to this question, since it depends on what you pay for your policy.

These four aspects will be taken into consideration when determining how much you’ll get from your homeowners insurance policy:

  • The actual cash value is the claim payout minus the depreciated value of the house. You will need to keep tabs on the value of your house when taking out an insurance policy.
  • Replacement cost value. This gives you the exact amount of money it takes to restore your house to how it was before it was damaged. 
  • Extended replacement costs can be used when the cost of restoring your home is higher than your policy payout limit. In this case, you’ll receive 25%-50% above the limit so that you can make up the deficit.
  • Guaranteed replacement cost ensures that you get enough money to rebuild your house. There is no limit on this level. 

Conclusion

Homeowners' insurance can cover almost every form of damage that could occur to your home. You must understand your requirements and needs before taking out a homeowners insurance policy so that you are prepared for any scenario.

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