Homeowners insurance coverage explained

Homeowners insurance provides homeowners with financial protection against the loss of a home or possessions, and lawsuits against the homeowner. Homeowners that have mortgages on their property usually are required to have insurance.

Banks that hold mortgages are co-owners and require insurance to protect their investments. Homeowners without a mortgage are not required to insure their property, but it’s a good idea to do so.

Homeowners insurance provides four types of coverage:

The actual building
This insurance will pay to repair or rebuild the home if it’s damaged by a disaster covered in the policy, such as a fire or lightning, but will not pay to repair or rebuild if the damage is caused by normal wear and tear.

Personal belongings
This insurance will pay for items lost as a result of a covered disaster, like a fire, and for theft. Off-premises coverage, which is included with most homeowners insurance policies, means that homeowners’ belongings are covered for these risks anywhere in the world. Expensive items like fur or jewelry may require additional insurance to cover their full value.

Liability
This insurance will cover injuries or property damage homeowners, or their children or pets, cause other people, anywhere in the world, and includes court costs and damages.

Temporary living expenses
This insurance pays for costs of living away from home, for things like staying in a hotel or dining in restaurants, if the home is temporarily unlivable because of an insured disaster.

Damages are not covered if they are caused by events that are not included in the insurance policy. Typical insurance policies don’t cover damages caused by earthquakes, floods, war, or nuclear accidents.

Basic coverage for homeowners

Basic homeowners insurance policies provide protection for property and possessions against a standard set of events or disasters.

Most cover the following: fire; lightning; windstorms; hail; explosions; riots or civil commotion; damages caused by aircraft or vehicles; smoke; vandalism; theft; volcanic eruption; falling objects; weight of ice, sleet, or snow; bursting or overflow of water or steam from, tearing apart or burning of, or freezing of plumbing, heating, air conditioning, fire sprinklers, or household appliances; or sudden damage from artificially generated electrical current.

If one of these events occurs, homeowners insurance will provide four types of protection. The insurance company will pay to repair or rebuild the home if it is damaged. The insurance will pay to repair or replace damaged or lost personal possessions, whether they were in the home or were damaged by one of these events anywhere in the world.

The insurance will pay for living expenses if the home is unlivable because of one of these events. The insurance will also pay if one of these events is caused by the homeowner and injures another or damages another’s property.

For each of the four types of homeowners insurance coverage – property, possessions, liability, living expenses – damage caused by events such as war, nuclear accidents, floods, and earthquakes are specifically excluded.

Special coverage for homeowners

Basic homeowners insurance does not provide coverage for every type of event that could cause damage to a home or property. It also does not provide coverage for the replacement cost for every item a homeowner possesses.

Damage caused by earthquakes is not covered in standard home insurance policies. Homeowners in earthquake-prone areas need to purchase special earthquake insurance in order to be paid for losses caused by an earthquake.

Floods are another disaster not covered in standard home insurance policies. Homeowners who live on floodplains or in flood-prone areas need to purchase special homeowners insurance flood coverage.

Umbrella policies add protection for things that are not included in the basic homeowners policy, like a swimming pool or other high-risk items. These types of special insurance coverage can be expensive, but well worth the cost in the event of a claim.

Basic homeowners insurance may not cover the full cost of some expensive items inside a home – like jewelry, fine art, furs, or other precious items. For these items, a homeowner has two choices, to raise the liability limit on the basic insurance policy or to purchase a special policy to cover the items.

The additional policy (called a rider) requires appraisal of the items and provides the broadest protection, as it covers items if they are lost, stolen, or damaged in a disaster.

Homeowners property insurance explained

Property insurance is a standard type of homeowners insurance, and it is designed to protect the physical possessions of the homeowner, as well as the structure of home itself.

Homeowners property insurance will pay to repair or rebuild a home if it’s damaged by a disaster covered in the policy, such as hail, wind damage, or damage caused by a vehicle. It does not cover, however, damage caused normal wear and tear on the property.

Personal property coverage also protects a homeowner’s possessions and personal belongings. The insurance will pay to replace items lost or damaged as a result of a disaster like a fire or damage caused by an aircraft, or items lost because of theft.

Homeowners property insurance includes off-premises coverage, meaning that it follows the homeowners’ possessions anywhere in the world, and will pay for items lost anywhere, not just in the home insured.

Expensive items, such as fine art or furs may require additional insurance to cover their full value. If a homeowner purchases a rider to the standard insurance policy, these items will be covered, whether they are damaged, lost in a disaster, stolen, or accidentally left somewhere and not recovered.

Damages to a structure and property are not covered if they’re caused by events not included in the insurance policy. A typical homeowner’s policy doesn’t cover damages caused by earthquakes, floods, war, or nuclear accidents.

Homeowners iability insurance explained

Liability insurance is a standard type of homeowners insurance, and it is designed to protect homeowners against lawsuits that can result from injuries or property damage caused to others by the homeowners, their pets or children. Liability insurance coverage pays for the cost of defending a homeowner in court and any awards paid to the other party.

Liability coverage has an off-premises component, meaning that it follows homeowners, and their children and pets, anywhere in the world, and will pay for losses anywhere in the world, not just in the home insured.

The liability portion of a homeowners policy also covers medical expenses if someone is injured in the home, which is a way to avoid having a liability lawsuit filed against the homeowner.

To feel more comfortable with the amount of liability coverage, some homeowners increase the liability limits on the standard homeowners insurance policy. Others decide to purchase umbrella or excess liability insurance.

This type of insurance includes additional coverage for things like libel, slander, or invasion of privacy claims brought against the homeowner.

Umbrella coverage may be worthwhile for homeowners with additional property or savings or other investments that are worth more than the limits of the standard homeowners liability insurance coverage.

Homeowners insurance coverage options

There are a few basic homeowners insurance coverage options that most homeowners will need, and a few other specialized options that only some homeowners will need.

Basic homeowners insurance policies provide protection for property and possessions against a standard set of events or disasters, including things like fire; hail; riots or civil commotion; damages caused by aircraft or vehicles; theft; volcanic eruption; falling objects; or weight of ice, sleet, or snow.

If one of these or another covered event occurs, homeowners insurance will provide pay the homeowner for losses. The property insurance component pays to repair or rebuild a damaged home; to repair or replace damaged or lost personal possessions, whether they were in the home or were damaged by one of these events anywhere in the world; and for living expenses if the home is unlivable because of one of these events.

Basic homeowners insurance may not cover the full cost of some expensive items inside a home, like jewelry, fine art, furs, or other precious items, and homeowners can buy special insurance coverage for those items.

The liability insurance component protects homeowners against lawsuits that can result from injuries or property damage caused to others by the homeowners, or their pets or children; and pays for the cost of defending a homeowner in court and any awards paid to the other party. It also pays for medical expenses if someone is injured in the homeowner’s home, which is a way to avoid having a liability lawsuit filed against the homeowner.

For each of these types of homeowners insurance coverage – property, possessions, liability, living expenses – damage caused by events such as war, nuclear accidents, floods, and earthquakes are specifically excluded.

Homeowners insurance costs

Homeowners insurance is a critical piece of a homeowner’s financial planning, and affordable options are available. So, what affects the costs of insuring a home?

One of the most important factors in the cost of homeowners insurance is the size of the home. This is followed closely by area the home is located in, the risks it is prone to – such as severe weather, earthquakes, or crime; and local building costs.

The overall economy also impacts the price an insurer can get for a product – if the economy is doing well, insurance policies are likely to be more expensive, because homeowners can afford it.

Homeowners can control some costs, though. A higher deductible can result in a lower monthly premium, but it’s important to find the balance between a reasonable deductible and a reasonable monthly premium.

Purchasing homeowners insurance as part of a bundle of other insurance coverage is another way to reduce costs. Loss prevention activities – such as installing smoke detectors or fire resistant roofing material – may reduce the risk of certain types of losses and home insurance providers reward homeowners for this with lower costs.

Finding the right insurance coverage at the right cost is a complex matter. It takes a bit of research to understand the general risks and costs. Working with an insurance professional is the best step to take to ensure that a homeowner purchases the correct type and amount of insurance, at the best cost.

Reviewing an existing homeowners insurance policy

Choosing homeowners insurance can feel like a daunting task. But once the homeowner is insured, the policy still needs to be reviewed, in order to make sure it provides enough protection for the current value of the home and possessions, and still addresses the risks that homeowner faces.

The best time to review home insurance is when the insurance company sends the renewal notice. In that letter, the company will explain any changes to the policy or coverage, and it’s important to ensure the policy still meet the homeowner’s needs.

At that time, the homeowner should also review the deductible – if the financial situation has changed, this is a good time to think about getting a higher or lower deductible to help with the premium payments. Additionally, if there are significant new personal possessions-such as computer equipment or fine art-the coverage may need some adjustment.

Another good time to review the insurance policy is after any major change, such as:

• A renovation or an addition that is either part of the existing home or is a new structure on the property.
• Starting a business in the home, which may require additional coverage for various reasons.
• An improvement that improves the safety of the home or property, like an alarm system.
• The purchase of an expensive item like artwork or jewelry
• A major lifestyle change such as a divorce or marriage

Homeowners’ inventories explained

A homeowner’s inventory is an important piece of the homeowners insurance process. If a home and possessions are destroyed, a list of the contents will help with the insurance claim against the homeowner’s policy, as well as verifying the loss for income tax returns. It also can help a homeowner determine the proper amount of coverage to purchase in the first place.

The first step is to make a list of possessions, describing them, when and where purchased, and make and model numbers if applicable. Include copies of receipts, contracts, or appraisals.

For items like clothing, it is only necessary to list the amount of each category owned – pants, shirts, dresses – with notes, receipts, or appraisals for anything particularly valuable.

The inventory process can take a bit of time, so at the very least, homeowners should take an inventory of all expensive or major items in the home – like art, jewelry, or collectibles. Photographs or videotapes are a way to show many items at once.

No matter how the information is recorded, it’s important that the information be stored outside the home-at a friend’s house, in a safe deposit box, or, for computerized records, backed-up off-site. This way, if the home is damaged, the information will be safe, and available to share with the insurance company.

About umbrella policies

Umbrella liability coverage is a type of additional homeowners liability insurance. This type of insurance provides an extra layer of protection for homeowners, above the liability limits of the standard homeowners insurance liability coverage.

Umbrella policies can be purchased for homeowners, renters, condominium or co-op, or automobile insurance policies. Like standard liability insurance umbrella policies protect homeowners against lawsuits from injuries or property damage caused to others by the homeowners, their pets or children, anywhere in the world.

Umbrella liability insurance also includes additional coverage for things like libel, slander, or invasion of privacy claims brought against the homeowner. Umbrella coverage may be worthwhile for homeowners with additional property or savings or other investments that are worth more than the limits of the standard homeowners liability insurance coverage.

Umbrella policies only pay after the standard homeowners insurance policy has paid. The cost of this type of insurance is not prohibitive, but most insurers require that the underlying homeowners liability policy be at least $300,000.

Home insurance quotes for umbrella policies start at about $1 million in coverage for anywhere from $150 to $350, and can go up from there. Additional coverage may cost $75 to $100 for each million above that.