What Does Homeowners Insurance Cover And Its Types?
Your home provides more than shelter. It may be your most valuable possession, one you can’t replace if calamity hits. That’s why you need home insurance. As a result, we must understand: What Does Homeowners Insurance Cover, and What Types Are Available?
If something covered by your insurance damages or destroys your home or valuables, your insurance will pay you back.
It covers you if you injure someone or damage property. There are four main functions of homeowner’s insurance:
- Pay for home, landscape, and other repairs.
- Fix or replace your belongings.
- Pay your rent while your residence is fixed.
- Cover personal liability if you do someone harm.
Homeowners insurance isn’t mortgage insurance, which you may need if you put less than 20% down.
No matter how much of a down payment you make, FHA loans and other federal loans may still need mortgage insurance.
Mortgage insurance reimburses your lender if you default.
Homeowners’ insurance protects you, not your lender.
Is Homeowners Insurance Required?
Laws don’t require homeowners’ insurance, but your lender may want it to protect its investment.
Even without a mortgage, home insurance is usually a good idea.
A homeowner’s policy is a financial safety net because it covers property and liability.
What Does Homeowners Insurance Cover?
Standard homeowners insurance policies generally include six types of coverage:
covers damage to the home and attached structures, such as a porch. | enough to rebuild your home. | |
covers stand-alone structures on your property, such as a fence or shed. | 10% of dwelling coverage. | |
It pays to repair or replace stolen or damaged belongings. | 50% to 70% of dwelling coverage | |
helps pay temporary living expenses while your home is being repaired. | 20% of dwelling coverage. | |
pays if you injure someone or cause property damage unintentionally or through neglect. | ||
It pays for injuries on your property, regardless of responsibility. You, a family member, or a pet can damage someone away from home. |
Dwelling Coverage
Dwelling covering includes walls, floors, windows, and a roof. Built-in appliances like furnaces are usually covered by house insurance.
Attached garages, porches, and decks are covered under housing insurance.
Most homeowner’s policies cover unspecified damage to your home.
According to the Insurance Information Institute, wind, hail, freezing, fire, and lightning are major causes of homeowners’ insurance claims.
A storm uproots a tree that crashes onto your home, smashing the roof and attic.
You pay the deductible, and the insurer pays the rest, up to your dwelling coverage limit.
Other Structures Coverage
Other structures insurance covers non-attached structures on your property.
A shed, fence, or detached garage qualify.
As with dwellings, most homeowner’s insurance policies cover other structures for any non-excluded occurrence.
You’d be covered for fire, wind, hail, and snow.
Snow collapses your fence. The insurance company would pay, minus your deductible.
Personal Property Coverage
Personal property includes clothes, furniture, electronics, and other non-built-in equipment.
Most homeowner plans cover these products worldwide, not just at home.
If your bike is stolen outside a store, it’s probably insured (minus your deductible).
Personal property coverage differs from house and other structure coverage in most homeowner policies.
Homeowners’ policies cover just the mentioned disasters and nothing else.
These “perils” include:
- Ice, snow, sleet weight.
- Surge damage.
- Plumbing, air conditioning, and appliances overflow with water.
- Home systems freezing.
- A hot water, steam, AC, or fire protection system rips, cracks, or bulges.
- Auto damage.
A pipe bursts in the winter, flooding your kitchen and dining room.
Personal property coverage covers damaged furniture, minus your deductible, but not built-in things like cupboards.
Loss Of Use Coverage
If your home is too damaged to live in, the loss of use clause of your homeowners policy can help.
If a covered disaster makes your house unusable, loss of use coverage may pay for hotel stays, meals out, and other costs.
What happens: You may be eligible for loss of use coverage if your house is undergoing covered repairs.
If your home is damaged by an uninsured event, like a flood, your insurer won’t cover additional living expenses.
After a kitchen fire spreads to your living room, contractors fix your home for months. Your insurance company would rent you a similar-sized house nearby.
Liability coverage
Personal liability insurance helps if someone sues you for injury or property damage.
If your dog bites someone at the park, you may be covered. Does homeowner’s insurance cover dog bites?
Liability insurance covers personal injury and property damage, with exclusions.
Criminal activities or intentional injury aren’t covered.
It won’t cover vehicle accident injuries or damages (your liability car insurance would cover those).
Before you can salt your snowy walkway, a delivery worker stumbles.
He sues for medical bills and lost pay after breaking his wrist.
Your liability insurance could pay for your legal fees and any damages from a lawsuit up to the limit of your policy.
Medical Payments Coverage
Medical cost coverage compensates if you injure someone outside your family.
Medical payments coverage pays money without requiring a lawsuit or determining fault.
What happens: If someone is injured on your property or you hurt someone outside your house, you can use medical payments.
Liability and medical payments include similar exclusions, including willful conduct and car accidents.
Your dog bites a guest. Your health insurance covers their urgent care visit for stitches.
What Homeowners Insurance Won’t Cover
Even the most comprehensive homeowner’s insurance won’t cover everything that can go wrong.
You can’t purposefully damage your residence and expect your insurer to pay.
Other factors, such as:
- Flooding from rain or storm surges.
- Backups cause floods.
- Sinkholes, landslides, earthquakes.
- Bird, rodent, fungal, or mould infestations.
- Neglect or deterioration.
- War, government action
Some risks can be insured separately.
Flood insurance, earthquake insurance, and windstorm insurance are available individually.
Expand Your Coverage With Endorsements
Ask your insurer about damage and occurrences not covered by your policy.
Many times, you can get more coverage for a fee.
Common house insurance endorsements are listed below. State and corporate policies affect availability.
A scheduled property includes a ring or musical instrument. For coverage, you may need an appraisal.
Ordinance or law coverage provides for repairs or rebuilding to meet building codes.
Coverage for backed-up sewer lines, drains, and sump pumps
Equipment breakdown coverage compensates for broken HVAC systems and major appliances.
Service line protection covers damage to your water, electric, or other utility lines.
Identity fraud insurance covers lost wages and legal bills.
This table lists frequent issues and whether home insurance covers them.
| If a windstorm damages your heating or cooling equipment, your homeowners insurance may pay to fix it. Adding a breakdown endorsement to your policy might cover mechanical breakdowns. Normal wear and tear won’t be covered. | ||
Standard homeowners insurance covers jewelry theft, fire, and other listed events, but not accidental loss. Adding broader jewelry coverage is a wonderful idea. Jewelry insurance explained | ||
Mold causes vary. Most insurers only cover mold caused by a covered problem, such as a busted pipe. homeowner’s insurance and mold. | ||
Slow leaks that build over time aren’t usually covered. (The latter is maintenance.) Your insurer won’t cover neglect-caused plumbing damage. | ||
Depending on the cause Insurance covers abrupt, unintentional damage like hail or wind, but not wear and tear. Insurance and roof leaks are covered. | ||
Infestations are considered routine home maintenance, which insurance companies don’t cover. | ||
Water damage varies. Floods aren’t covered by most homeowners’ insurance. You must pay for an endorsement to cover backed-up drains or sewers. Your insurer will usually pay for frozen and busted pipes. Do homeowners’ insurance policies cover water damage? |
Types Of Homeowners Insurance Policies
Homeowners’ insurance “policy forms” vary. Some varieties offer more comprehensive coverage than others.
Different insurance firms may call these policies differently.
Most Popular: HO-3 Insurance
HO-3 insurance policies are the most frequent. Your mortgage lender may need this level of coverage.
HO-3 insurance covers home damage from any cause except earthquakes and floods.
HO-3 insurance covers only the risks outlined in your policy for your belongings.
Broadest Coverage: HO-5 Insurance
HO-5 homeowners insurance provides the most coverage. It pays for damage to homes and belongings from all causes except those excluded.
Not all insurers offer it for well-maintained properties in low-risk areas.
Wisdom
“Comprehensive form” or “superior” coverage is sometimes dubbed HO-5.
An HO-3 policy may be called “premier” without having HO-5 coverage.
Ask your agent or representative about HO-5 insurance.
Limited Coverage: HO-1 And HO-2 Insurance
HO-1 and HO-2 homeowners insurance pay only for the events mentioned.
Other policy kinds include HO-4 for renters, HO-6 for condo owners, HO-7 for mobile homes, and HO-8 for older properties.
How Homeowners Insurance Works
If your home is destroyed, your home insurance company won’t simply issue you a payment.
First, file a damage claim. Payouts depend on coverage and the deductible.
Replacement Cost Vs. Actual Cash Value
Your compensation will depend on whether or not your insurance will pay to fix your home even if the cost is more than what your policy covers.
This may happen if construction prices have risen but your coverage limits haven’t. Here are some possibilities:
Actual cash value coverage pays for repairs or replacements, less depreciation. This strategy is widespread for personal belongings, but not for homes.
For old items, you’ll get a fraction of what new ones would cost.
Functional replacement cost coverage fixes your property with equivalent but cheaper materials.
Your contractor could replace damaged plaster with drywall.
Plaster walls can be replaced with plaster because the replacement cost value covers repairs using “similar sort and quality” materials.
Your policy’s dwelling coverage limits won’t be exceeded.
Some plans cover personal items’ replacement costs. This means the insurer will pay to replace your old goods without depreciation.
Check the policy details if you want this feature. It’s common, but it costs more.
Extended Replacement Cost Value coverage pays you more than the face value of your dwelling policy, up to a predetermined amount.
The limit can be a dollar amount or a percentage, like 25% of your home coverage. This helps if rebuilding costs more than planned.
With guaranteed replacement cost, your insurance company will pay to fix or replace your house after a covered loss, even if it costs more than what your policy covers. Some insurance providers don’t offer this.
Homeowners Insurance Deductibles
Homeowners plans have deductibles you must pay before your insurer pays. Deductibles include:
$500 or $1,000.
1% or 2% of the home’s insured value
The deductible is deducted from the claim check by the insurer.
Your insurer approves a $10,000 claim with a $1,000 deductible. The insurer pays $9,000, and you pay $1,000.
Wisdom
Higher deductibles cut premiums. You’ll pay more for claims, though.
If you have a lower deductible, you may have to pay a higher premium, but your insurance company will cover almost all of the costs of an accident.
Some insurance companies have different deductibles for wind, hail, hurricanes, and earthquakes. A policy may have a $1,000 deductible for regular losses but a 10% deductible for earthquake coverage.
If an earthquake damages a $300,000 home, the deductible is $30,000.
Liability claims have no deductible.
Frequently Asked Questions
Homeowners insurance cost?
According to NerdWallet, homeowners insurance costs $1,784 annually. Your rate depends on your location and how much coverage you buy. Most states consider credit scores.
How can I save on home insurance?
There are strategies to lower your homeowners insurance premium. Bundling home and auto insurance might save you money. Burglar alarms and deadbolt locks may lower your rate. Compare home insurance quotes to find the best deal.
What’s enough home insurance?
You need enough house insurance to cover reconstruction costs. Personal property limits should be at least 50% of your home insurance. Set your liability limit to cover all your assets. How much home insurance do you need?
Tax-deductible house insurance?
Your primary residence’s homeowners insurance isn’t tax deductible. If the house is a rental, the premiums may be tax deductible.
