When you buy homeowners insurance, it is important that you understand what your policy actually covers, before you need to file a claim. The idea behind home insurance is to protect you in case disaster strikes, although the specific disasters and the extent of your coverage will vary, so make sure your policy fits your needs.
The typical homeowners insurance policy is broken into two parts, property protection and liability protection, which are themselves further broken down into sections by type of property and liability.
> Property Protection Coverage <
The property protection part of your homeowners insurance coverage protects you in case of damage to, or destruction of, your property. Keep in mind that some disasters, like earthquake and flood are not typically included in a standard policy. To be covered against these, you must buy separate coverage. Make sure you are aware of the exclusions in your policy.
Property protection covers four areas:
* Dwelling Coverage: This portion of your homeowners policy covers the cost of rebuilding or repairing your house if it is damaged or destroyed. Even if you consider the risk of a total loss to be unlikely, you should still make sure that you get enough dwelling coverage to rebuild completely. This is one area of your coverage where you don’t want to cut corners.
Additionally, the coverage amounts in the remaining sections of your property protection are usually a percentage of your dwelling coverage.
* Other Structures Coverage: This section covers any structures on your property that are not attached to the house, such as sheds or detached garages. This coverage usually amounts to 10% of your total dwelling coverage. For example, with $150,000 in dwelling coverage, you would have $15,000 in other structures coverage.
* Personal Property Coverage: Your personal property is defined as your home’s contents and any additional personal items owned by all persons living in the house. Personal items damaged or stolen away from home are also usually covered, although at a lower limit.
Personal property coverage is typically 50%-70% of your dwelling coverage. You can purchase additional personal property coverage if your belongings are worth more. Certain items, like jewelry, guns and artwork, are usually either excluded from coverage or are given only limited coverage. For example, coverage on jewelry is often limited to $2000 or less. If you have items worth more than the coverage limits, you will want to buy separate policies for them.
* Additional Living Expenses or Loss of Use Coverage: If you home is completely destroyed, or becomes uninhabitable due to a covered loss, you will need temporary housing. Loss of use coverage reimburses you for reasonable expenses related to your relocation, such as hotel or restaurant bills. Standard coverage is up to 20% of your dwelling coverage.
> Liability Protection Coverage <
Liability protection broadly covers injuries to your guests, and is broken into sections depending on whether or not the injured party brings a lawsuit against you. Not every incident is covered, however. For example, most homeowners insurance policies exclude injuries due to abuse or other illegal activities. It also does not cover any residents of the home or business-related accidents.
* Medical Payments Coverage: If the injured person chooses not to sue, this coverage will pay their medical bills, typically up to $1000. The coverage limit is per person, so if more than one person is injured in a single incident, each is covered for $1000 (or your limit). You may purchase additional coverage if you feel you might need it. You do not need to be at fault in order to use this coverage to pay your injured guests’ medical bills.
* Personal Liability Coverage: This section also covers guests injured at your home, but rather than just paying medical bills, it protects you and your family from lawsuits. Most standard home insurance policies include $100,000 per liability claim. Again, you may purchase additional liability insurance if you feel you need it. Owning a swimming pool, for example, increases your risk of being sued due to a pool-related incident.
Whether you are purchasing a new policy or reviewing your existing one, make sure you understand exactly what your policy covers and the coverage limits. Then make sure it is sufficient for your needs. After a loss is not the time to discover that you weren’t carrying enough home insurance.