Homeowners Insurance and What is and is Not Covered

Each insurance company has its pros and cons, and each has it’s own policies, pricing structures, and options for homeowners insurance. Thus, by just going ahead and purchasing homeowners insurance from the company that the real estate agent recommends, you’re doing yourself a disservice.

So let’s be clear on what homeowners insurance is. It is simply a legal agreement between a homeowner and the insurance company, that in consideration for the homeowner paying monthly or annually for homeowner insurance, the insurance company will compensate the homeowner in the even the home is significantly damaged or destroyed. In addition, depending upon the homeowner insurance options that are included in the agreement, the homeowner insurance policy may also include coverage for the contents of the home, liability protection, and temporary displacement costs while the exterior and interior structure of the home is repaired.

And within these options there are even more options, e.g. full replacement value coverage for the contents of the home versus a pro-rated value for them.

Structural Coverage

The basics for any homeowners insurance policy is coverage for the structure of the home. In the event the home is damaged or destroyed, e.g. by fire or hurricane, the insurance policy provides financial compensation to repair or rebuild the home. Most homeowners insurance polices don’t cover flood and earthquake damage since they are considered acts of God. However, you can often pay additional money for protection against these types of causes of structural damage to your home.

Another area to evaluate when looking into homeowners insurance is whether or not their homeowner insurance policies cover garages and porches attached to the home, as well as out buildings on the same property. The coverage can vary between homeowner insurance polices. Consequently it’s important to understand what could be excluded from coverage in each homeowner insurance policy offered to you.

Content Coverage Most homeowner insurance policies not only cover the structure of the home, but to varying degrees, coverage for the contents of the home. Typically the amount of coverage for the contents of the home is a percentage of the insurance for the structure of the home. The percentage varies between 50 and 70%. So for example, if the home structure is insured for $200K, the value of the contents is insured up to between $100K-140K. Also, high ticket items such as jewelry is capped at a certain value, often no where near the actual purchase price or value of it. Thus, why you should buy separate insurance for jewelry and other valuables.

Personal Liability Protection

Liability insurance provides protection to you, your family and pets in the event that they somehow injure someone or damage someone else’s property while it is on your property (e.g. car). Liability insurance also protects you in the event a guest at your house accidentally gets injured while in your home. Liability protection is typically limited so it is important to find out how much coverage is offered with each homeowner’s insurance policy offered to you.

So make sure you do your homework when buying a homeowners insurance policy. They are not all the same and should require the same amount of attention as any other item in the process of purchasing a home.