Homeowners Insurance—And Why You Need It

What is homeowners insurance?

Homeowners insurance is a type of property insurance that protects a person financially in the event of a loss or damage to their home as well as the contents of their home, such as their furniture and other valuables. Homeowners insurance also covers liability in case of accidents in the home or on the property.

Main Points

• • Homeowners insurance is a type of property insurance that protects a person’s residence and other belongings from losses and damage.
  • Interior damage, exterior damage, loss or damage to valuables, and injuries sustained while on the property are typically all covered by the policy.
  • Every homeowners insurance policy has a liability limit that establishes how much coverage the insured would have in the event of an unexpected event.

Overview of Homeowners Insurance

In most cases, a homeowners insurance policy will provide coverage for the following types of losses that can occur on the insured property: damage to the interior of the home, damage to the exterior of the home, loss or damage to personal assets or belongings, and injury sustained while on the property. In the event that a claim is filed on any of these occurrences, the homeowner will be asked to pay a deductible, which is, in essence, the amount that the insured will have to pay out of their own money.

Consider the following scenario: a homeowner files a claim with their insurer after discovering water damage on the interior of their home. A claims adjuster has determined that the amount of money necessary to restore the property to a state that is habitable will be $8,000. In the event that the claim is approved, the homeowner will be notified of the amount of their deductible, which may be as high as $3,000 depending on the terms of the policy agreement. In this instance, the insurance provider will make a payment in the amount of the excess cost, which is $5,000. If you have a higher deductible on your insurance contract, you will pay a lower monthly or annual premium on a homeowners insurance policy.

Every homeowners insurance policy has something called a liability limit, and this limit determines how much coverage the insured has in the event that something unfortunate happens. Standard limits are often set at $100,000, although the policyholder has the option to choose a higher limit. The liability limit specifies, in the event that a claim is made, the percentage of the coverage amount that would go toward replacing or repairing damage to the property structures, personal belongings, and costs to live somewhere else while the property is being worked on.

What is not covered by a standard homeowners policy

Despite the fact that many types of disaster-related damage are covered by homeowners insurance, there are some exceptions. Standard homeowners insurance policies mostly do not cover damage caused by wars or natural disasters, such as earthquakes or floods. It is possible that a homeowner who resides in a region that is prone to these natural disasters may be required to obtain special coverage in order to insure their property against earthquakes or floods. However, the majority of standard homeowners insurance policies include coverage for natural hazards such as hurricanes and tornadoes.

What is covered by standard homeowners insurance?

Homeowners insurance protects you financially against loss that occurs as a result of disasters, theft, and accidents. Most standard policies include 4 important types of coverage: coverage for your home’s structure, coverage for your personal belongings, protection against liability, and coverage against additional living expenses.

Coverage for your home’s structure

If your home is damaged or destroyed as a result of a disaster that is included in your homeowners insurance policy, such as a fire, hurricane, hail, or lightning strike, your policy will pay for the cost of repairing or rebuilding. The majority of insurance policies will also cover detached structures like a garage, tool shed, or gazebo. The cost of this additional coverage is often around 10 percent of the total amount of insurance you have on the structure of the house.

A standard insurance policy will not pay for damage that is the result of an earthquake, flood, or normal wear and tear.

When shopping for insurance to cover the structure of your home, keep in mind this helpful rule of thumb: Make sure you buy enough insurance to cover the cost of rebuilding your property.

Coverage for your personal belongings

If your belongings, including your furniture, clothes, sporting equipment, and other personal items, are stolen or destroyed as a result of insured disasters such as fire, hurricane, you will receive compensation. In most cases, the coverage will account for between 50 and 70 percent of the total amount of insurance you have on the structure of the house.

A home inventory is the most effective method for determining whether or not this level of coverage is sufficient.

The protection of your personal belongings extends to include items stored away from the premises; as a result, you are covered no matter where you are in the world. There are some firms that cap the amount at no more than 10 percent of the total value of your items’ insurance policy. You are also protected against losses of up to $500 incurred as a result of unauthorised use of your credit cards.

Even while expensive items like jewellery, furs, art, collectibles, and cutlery are normally covered in the event that they are stolen, there are usually dollar limits in place. Purchase a special personal property endorsement or floater and insure the item for its official appraised value if you want to cover the full worth of these items under your insurance policy.

Standard homeowners insurance policies also include coverage for trees, plants, and shrubs, albeit the cost is often around $500 per item. There is no insurance coverage for trees and plants in the event that they become infected or if they are not maintained properly.

Protection against liability

Liability coverage protects you against legal action for personal harm or property damage caused to third parties by you or a member of your family. Additionally, it covers any damages that are caused by your pets. That is to say,  protected in the event that your son, daughter, or even your dog accidentally destroys a costly rug belonging to a neighbour. (If, on the other hand, they manage to ruin your rug, you are out of luck.)

Up to the limit that is specified in your policy documents, the liability coverage of your insurance policy will pay for both the costs of defending you in court as well as any awards made by the court.

Liability limits often begin at around $100,000; however, it is a good idea to discuss whether you should get a higher level of protection with your insurance agent. Consider getting an umbrella or excess liability policy if you have considerable assets and want more coverage than what is offered under your homeowners policy. This type of policy gives broader coverage and higher liability limits than a standard homeowners policy does.

Your plan also includes no-fault medical coverage, which means that if a friend or neighbour is injured in your house, you won’t be held financially responsible for their treatment, because they can simply submit their medical bills to your insurance provider. By doing this, costs can be covered without risk of a liability claim being made against you. However, it does not cover the costs of medical care for you, your family, or even your pets.

Additional living expenses (ALE)

If you are unable to reside in your home because of damage caused by an insured event, ALE will reimburse the additional costs associated with living elsewhere. During the time that your home is being rebuilt, it pays for expenses that are above and beyond your normal living expenses, such as hotel bills, restaurant meals, and other costs.

Remember that the ALE coverage that is included in your homeowners insurance has limits, and that some policies set a time limit as well. However, these limits are not taken into account when determining the amount of money that can be used to rebuild or repair your home. Even if you exhaust your ALE, your insurance company will still pay the total cost of rebuilding your home up to the policy limit.

If you rent out a portion of your house, Additional Living Expenses (ALE) will compensate you for the amount of rent that you would have received from that tenant had your property not been destroyed.