Understanding what and how your policy covers is the first step in assuring the right protection for your home and other important investments.
What is in a standard Homeowners insurance policy?
A Standard homeowners policy includes four essential types of coverage:
1) Coverage for the structure of your home and other structures.
2) Coverage for your personal belongings.
3) Additional living expenses in the event you are temporarily unable to live in your home due to a loss.
4) Liability protection.
The Structure of your home
This part of your policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning, or other losses listed in your policy. It will not pay for damage caused by a flood, earthquake, or water and sewer backup unless purchased separately. When purchasing coverage for the structure of your home, it's important to buy enough coverage to rebuild your home, should that be necessary.
Most standard policies also cover structures that are detached from your home such as a garage, tool shed or gazebo. Generally these structures are covered for about 10% to 20% of the amount of insurance you have on the structure of your home.
Your personal belongings
Your furniture, clothes, sports equipment and other personal items are considered personal property and are covered if they are stolen or destroyed by fire, hurricane or other insured disaster. Most companies provide coverage for 60% to 80% of the amount of insurance you have on the structure of your home. For example, if you have $100,000 on the structure of your home, you would have between $60,000 and $80,000 of coverage for your "personal property". The best way to determine if this is enough coverage is to conduct a home survey.
Personal property coverage includes off premises possessions coverage. This means that your belongings are covered anywhere in the world, unless you have chosen no to purchase off premises coverage. Some companies limit the amount to 10% of the amount of insurance you have for your possessions.
In addition, you may have up to $2500 of coverage for unauthorized use of your credit cards.
Valuable items such as jewelry, furs, silverware, and guns are covered but there are usually dollar limits if they are stolen. Generally you are covered for between $500 and $2000 for all of your jewelry and furs. To insure these items to their full value, you can purchase a special personal property endorsement, or "floater" which insures the item to their appraised value. Coverage may also include "accidental disappearance" meaning coverage if you simply lose that item.
Trees, plants and shrubs are also covered under a stander homeowners insurance policies. Generally you are covered for 5% of the insurance on the house, up to about $500, per item. Perils covered are theft, fire, lightning, explosion, vandalism, riot, and falling aircraft. Trees, plants and shrubs are not covered for damage by wind or disease.
Additional living expenses
Coverage for additional living expenses pays the additional costs of living away from home when you cannot live in your home due to damage from a fire, storm or other insured peril. It covers hotel bills and other living expenses incurred while your home is being rebuilt. Many policies provide coverage for about 20% of the insurance on your house. You can increase this coverage, for an additional premium.
Liability Protection
Liability protection covers you against claims or lawsuits for bodily injury or property damage that you of family members cause to other people. It also pays for damage caused by your pets. Therefore, if your son, daughter or dog accidentally ruins your neighbors valuable rug, you are covered. However, if they destroy your rug, your liability coverage does not provide compensation.
Your policy also provides medical coverage. In the event a friend or neighbor is injured in your home, he or she can simply submit medical bills to your insurance company. Expenses are paid without the injured party filing a liability claim against you. Medical coverage generally ranges between $1000 to $5,000. It does not however, pay the medical bills for your family or your pet.
Liability coverage pays for both the cost of defending you in court and any court awards-up to the limit of your policy. This coverage applies anywhere in the world.
Liability limits typically start at about $100,000. However, some experts recommend that you purchase at least $500,000 worth of protection for added coverage and security. You can also purchase for added coverage an umbrella or excess liability policy to provide broader coverage, including claims against you for libel and slander, and higher liability limits. Generally, umbrella policies cost between $150/yr and $350/yr for $1 million of additional liability protection.
Things to Think About
Some optional coverages available for purchase on home policies include:
Replacement cost
The policy pays the cost of rebuilding/repairing your home or replacing your possessions without a deduction for depreciation.
Water back-up
-This insures your property for damage caused by the back-up of sewers and/or drains. Water back-up may not always be included in a policy
Umbrella Liability
-This is a way to add more liability protection and broader coverage to your standard policy.
Earthquake insurance
-If you live in an area prone to earthquakes, you should consider purchasing earthquake coverage.
Flood Insurance
-Flood insurance is available from FEMA's National Flood Insurance Program WWW.FEMA.GOV/NFIP/
Floater or endorsement
-If you own expensive jewelry, furs, antiques, or collectibles, you may want to consider purchasing additional coverage.
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