What Does Your Home Insurance Cover?

A home insurance policy protects the value of your home and personal property against fire, theft and other damage. Homeowners with mortgages are usually required by their lenders to carry a home insurance policy that guarantees the value of the home. Natural disasters and other situations can always occur, making home insurance a safe and logical choice.

Types of Protections

The standard home insurance policy includes coverage of four types of losses due to disasters, theft, accidents, and additional living expenses (ALE).

Structural Coverage

Your policy will reimburse you when you must rebuild or repair your home due to covered damage, including fire, wind, hurricanes, lightning, hail and other disasters. Your detached structures, such as a shed, gazebo or garage, are also covered, usually for about 10% of the insurance amount on your house structure. Not covered are damages from earthquakes, floods and everyday wear and tear. You should always buy enough coverage to rebuild your home from scratch – anything less is risky.

Personal Belongings Coverage

Disasters not only destroy a home, they ruin the contents as well. Your insurance covers damage or theft of personal belongings, such as clothing, furniture, equipment and so forth. You can insure your belongings for their current value or their replacement value.

You’re advised to perform an inventory of your belongings to see if you have adequate coverage. Note that your personal belongings are covered even if they are off the premises. You’re also covered for unauthorized use of your debit or credit card up to a set amount, usually $500.

For big-ticket items such as furs, jewelry, silverware, and collectibles, you’ll probably need a floater, or personal property endorsement, to insure the items for their full appraised value. Your trees, shrubs and other plantings are covered (from fire and wind but not pests or disease), usually up to $500 per item.

Liability Protection

You’re covered for lawsuits arising from property damage or personal injuries caused by you or your family. The policy even covers damages your pet causes. So, if your daughter accidentally hurts her friend while playing, you’re covered for damages, including medical costs and legal fees. Medical coverage is no-fault, meaning the money is paid by submitting the bills to the insurance company – no court procedure is needed.

The liability limit usually starts at $100,000, but you can add more coverage if you feel it is necessary. For wealthier individuals, an umbrella liability policy might be a good idea, as it has higher limits and provides broader coverage. Note that this protection only covers others – it doesn’t cover you or your family.

Coverage for Additional Living Expenses (ALE)

If you can’t live in your home when its under repair, ALE coverage pays the additional costs of living away from your home. That means it’ll cover reasonable charges for hotels, restaurants and other costs above your regular living expenses. ALE coverage might be capped as to amount and time period following the damage to your home. This coverage is separate from and does not reduce the coverage of structural damage.

Flood Insurance

Unfortunately, flooding is anything but rare nowadays. Hurricanes, storms and even tidal waves make many homeowners vulnerable to flooding all year round. Flooding is the number one disaster in the U.S., according to the Federal Emergency Management Agency. Up to 30 percent of flood claims arise from properties located in low- and moderate-risk areas. Floods aren’t caused only by violent storms – something as simple as a broken water main or backed-up sewer can result in a flood. Proximity to water is not necessary to experience flood conditions.

Even though flood insurance is a necessity in many locations, some homeowners are surprised to learn that it is not included in homeowner policies. It must be separately purchased from the federal government. Others mistakenly believe that federal disaster assistance will protect them, unaware that many floods aren’t declared as federal disasters. And even if so designated, assistance is in the form of interest-bearing loans that must be repaid.

Flood insurance is a good idea. It’s low-cost, pays for all flood damage, and is not a loan – no repayment necessary. Bear in mind that there is a 30-day waiting period before a flood insurance policy becomes effective.

Pro Tip: “The frequency and severity of natural disasters have increased significantly in the last two years. In 2019, the US experienced 14 natural disasters with claims payouts exceeding $1B. The average is four natural disasters per year, so we experienced more than a three-fold increase. As a result, many policyholders may see rate increases. Homeowners who see a spike in their rates should consult with an independent insurance agent to find out if there are better policy options available.” – Brian Samberg, Senior Vice President, NSI Insurance Group Boca Raton 

Considerations for Families

You’ll have to carefully examine the policy’s language to see how it handles certain ambiguous family situations, such as:

• Separation: You’re separated from your spouse and have moved out of your home, which is jointly owned. Both of your names are on the homeowner’s policy. You might not be considered a resident of the insured home, which could affect you if your belongings are damaged at or stolen from your new abode.
• Divorce: You share custody of your children with your divorced spouse. The kids divide their time between their spouse’s insured home and your rental apartment. Suppose your child injures someone while staying with you and you’re sued. Will the insurance company claim that you’re not covered by your ex-spouse’s policy? Probably.
• Friends: Your stepdaughter’s boyfriend has a dog that bites the mailman on your premises. The mailman sues you. Your stepdaughter lives with you at home, but the boyfriend doesn’t. Since the boyfriend doesn’t live in your house and the dog doesn’t belong to a family member, you aren’t covered for the lawsuit.

Buying Tips

Credit scores are often a factor in determining your home insurance monthly payments – the higher the score, the less you’ll pay. Homeowners insurance policy rates and terms vary by state, but that shouldn’t stop you from comparing the rates of national carriers to those in your locality. Choosing a higher deductible can help lower your monthly payments. You can bundle homeowner’s insurance with your auto insurance and other policies for further savings.

Be sure to compare home insurance rates and terms to find the best insurance plan for your needs. The relatively small amount of time you invest in identifying the best policy can save you a ton of money over the years.

Andy is the Digital Marketing Specialist at Finance Guru, a credit card, banking, insurance, loan and home utilities comparison website.

Note: This is a guest post; the views and opinions expressed are those of the author and do not necessarily reflect the opinion or position of Redfin.