Policy Basics: What Does Your Homeowners Insurance Cover?
Home insurance is a valuable tool to protect your home and belongings, but what does homeowners insurance cover? We're breaking it down for you.
Imagine this: You come home after work and realize someone broke into your backyard shed. Initially, you’re just annoyed, but then you see your new lawn mower and gardening tools are gone, and the stress sinks in. You wonder if this is covered by your home insurance, if your policy will replace everything that’s missing, and if your premium is going to go up now.
Don’t worry. You’re not alone. In fact, a majority of homeowners don’t know what their homeowners insurance policy actually covers. After all, many insurance policies can feel far too complicated to comprehend. Still, they are necessary to homeownership. They protect your home, your possessions, and your family in the case of an emergency or disaster. Plus, while they may be pretty confusing at points, they provide invaluable peace of mind.
So, how do you know what you’re protected against? We’ve talked with experts with decades of experience in the industry to break down the ins and outs of homeowners insurance and what a standard policy covers. Here’s what homeowners need to know.
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What is homeowners insurance?
Homeowners insurance is exactly as it sounds: a form of insurance that protects your home and your belongings and helps shield you from personal liability in case of disaster. Simply put, it is a protection for your investment, and it provides financial peace of mind in the event of significant covered repairs. Plus, many banks and lenders actually require it to receive and maintain a mortgage loan. They want to ensure their own investment (i.e., your loan) is protected against accidents as well.
Even if your lender does not require it or if you paid cash for your property, experts strongly recommend getting homeowners insurance anyway, says Sam Mansour, a Washington state real estate agent with 22 years of experience. While exact coverage will vary from policy to policy, homeowners insurance is meant to financially cover you when an unpredictable catastrophe hits.
Plus, it’s an extremely valuable tool to use before your closing, Mansour says. You may be able to receive a “CLUE report,” an extensive look at the claims history on the property, when applying for insurance. This will give you an idea of past claims the previous owner submitted and what repairs were necessary.
“Let’s say there was a smoke claim or a fire claim in the house,” Mansour says. “Now, I want to know, was that repaired professionally, or was that repaired by a homeowner? And are there any remnants of it?”
What does homeowners insurance cover?
A standard policy protects four main areas, according to Loretta Worters of the Insurance Information Institute (III), an association focused on fact-based insurance information. Your coverage will typically cover the structure of your home, your belongings, liability lawsuits related to your property, and living expenses if you have to leave your home temporarily.
Within those areas, a standard policy will cover up to 16 perils, which is just insurance lingo for dangers (i.e., fire, theft, etc.). Sound confusing? Let’s look in detail.
Dwelling protection
This is what most people think of when it comes to home insurance: the actual protection of your home and structure. So when something bad happens to the physical structure of your house, this section of your policy will kick in and help pay for repairs.
Most policies require you to insure at least 80% of the replacement cost for the home, meaning the total cost to rebuild your house (Note: this is different from the market price, which is the property value determined by the real estate market). However, Worters recommends covering 100% of the replacement cost of your house. This means in case of a disaster, you will be compensated for the full cost of rebuilding your home as long as it’s under the coverage limit (the amount you insured the house for).
This part of your policy will most likely also cover secondary structures on the property, such as detached garages or sheds. Typically, you’re covered for these structures up to 10% of your coverage limit. So good news! In our example above, the broken shed would be covered under a standard home insurance package. That said, policies can vary, so it’s always a good idea to review your policy, coverage amounts, and possible exclusions in detail.
Personal property
Just like the structure of your home is protected, so too are your personal belongings that live inside. Similar to dwelling coverage, if one of the perils covered in your policy occurs and destroys your couch, you will receive compensation up to a certain amount.
Worters says you can expect personal property coverage to be around 50% to 70% of the insured amount. That means if you have your home insured for $300,000, you can expect the insurance company to cover about $150,000 to $210,000 of the personal property you lost.
An added plus: Your belongings are covered no matter where they are in the world. So, if your tablet is stolen at the airport, your personal property policy will likely pay you the cost to replace it (provided it’s worth paying the deductible to have it replaced).
Personal liability
This is one of the more confusing parts of your policy. Liability protection covers you if you’re sued for any bodily injuries or property damage you or a family member (including the furry ones) caused. So let’s say your mailman slips on your porch, and they decide to sue you. Your policy will pay for your legal costs and any compensation you owe up to a specific amount. Coverage limits usually begin around $100,000, according to the III.
This part of your policy often will also protect you off your property. So, if you’re at the dog park and your dog bites another owner there, your policy will cover any costs (again up to the coverage limit) connected to the incident. In simple terms, liability protection protects you or a family member if you’re legally responsible for damages or injury, whether it’s off or on your property.
One last thing: Your policy will also pay for the medical expense of the individual hurt on your property (at least, up to a point). So, in the case of the mailman, your liability policy will pay for any necessary medical expenses, including hospital visits or ambulance costs. This can be paid out even if you aren’t deemed liable, meaning it’s “no-fault coverage.”
Coverage limits for medical coverage paid to others range from $1,000 to $5,000.
Loss of use
This part of your policy will pay for your living expenses if you need to move due to property damage temporarily, Worters says. For example, if a tree takes out part of your roof and you can’t live in your home while it’s being fixed, your policy will cover costs toward your temporary living quarters, your meals, and other similar expenses until you get back into your home.
Again, there is a limit. Typically, your loss of use coverage will be around 10% to 20% of your dwelling insurance amount. There may also be a time limitation, typically a year, on how long your insurance will reimburse you for living expenses, Worters says.
