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Homeowners Insurance:What’s
covered, what’s not, and what to look for
What's covered, what's not, and what to look
for.
 Buyers should consider the options available.
Individuals planning on purchasing a home spend weeks if
not months picking the perfect neighborhood, floor plan, and then home before they even consider
purchase. In a similar way, buyers will shop around and compare the interest rates offered them on
mortgages. Yet, when it comes to homeowners insurance, the norm is to still simply to defer the
decision-making to the agent. But just as you wouldn’t consider purchasing your home without first
researching and planning, so also should homeowners insurance buyers consider the major options
available when it comes to buying a homeowners policy.
In its simplest form, homeowners insurance is an
agreement between you, the homeowner, and an insurance company, that in exchange for you making
monthly payments, they will compensate you for any significant damage that affects your home. This
at least was the form of original homeowner’s policies. Today’s policies are more complex, both
covering, and excluding a wide range of situations.
Broadly, a homeowner’s policy covers four major areas of liability. These
include:
1. Coverage for the structure of the home
2. Coverage for the contents of the home
3. Liability protection
4. Temporary displacement costs in the event of
disaster
Coverage for
the Structure
This
structural protection is what most people commonly conceive of when they think about homeowners
insurance. Purchasing a home is a major investment in the lives of most individuals, and as a
consequence, the threat of loss of that property, would be so devastating financially that it
motivates individuals to seek out insurance as a means of protecting their financial interest. But
despite common perceptions to the contrary, homeowners insurance does not cover any and all damages
to the home. While each policy varies slightly, most commonly floods and earthquakes are excluded
from coverage. That means that if you have a standard policy and your home floods, you will not be
recompensed by your insurance company for your loss. On the other hand, other disasters such as
hurricane, fire, and hail are typically covered under the standard policy. In addition, most
standard policies cover other structures that are fixed or attached to the home, most commonly
garages or porches. While these general guideline
Coverage
for Personal Belongings
Homeowner’s insurance policies cover not only the structure of a home, but
much of its contents as well. Because the coverage to items within the home is not complete,
however, it is important to know the limitations of your policy. The industry standard is between
50 and 70% of the value of the policy. That is, if you have the structure of your home insured for
$100,000 that policy typically covers the value of your possessions up to $50,000 or $70,000 if
they are stolen or damaged in non-excluded circumstances. But, just as with the structure of the
home, this coverage is not all-inclusive. For example, there is typically a limit on the amount
your insurer will pay out on high dollar items such as jewelry or expensive clothing. This limit
can vary but typically maxes out at $2,000. An oft forgotten possession related to the home, is the
landscaping. Under most standard policies insurance that will recompense the insured for up to $500
in landscaping damage is also covered. But once, again payment.
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Liability
Protection
Moving
farther away from most common conceptions of a homeowner’s policy, it is important
to note that policies also cover personal liability for you, your family members
and pets. This means that by virtue of owning the homeowners policy you are
covered in case, for example your dog tears up your neighbor’s lawn, or far worse,
if your neighbor hurts himself while visiting your home. Even more in this
aspect of the policy than in any others, the exceptions are vitally important to
understand. The amount of liability coverage that comes with a basic policy
is a rather standard $100,000. But depending on the exclusions, that similar
number belies a world of difference when it comes to actual personal
protection.
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Tempory Displacement
Compensation
If an accident befalls your home and you are unable to inhabit
your home temporarily, your homeowners insurance provider will cover the costs of
your housing and some additional costs during the interim. Included under
this coverage, for most standard policies are things like food, and other basic
living expenses. But some policies go farther by compensating you for
slightly more extravagant costs like clothing purchases. The coverage for
displacement costs varies here more than anywhere else. Some companies use a
percentage calculation to determine how much in temporary displacement compensation
you can receive to cover hotel bills, food, and the like. This number is most
typically set at 20% of the value of the insurance on the structure of the
home. Other companies take a different approach, however. They offer
unlimited, or at least higher valued, temporary displacement compensation, however,
these benefits are time-dependent. This means that once your coverage time
expires, you receive no more be
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In all of these categories, insurers offer a wide
variety of options dependant upon your willingness to pay. For example, you can up your protection
for high-dollar possessions if you have a lot of jewelry. In the same way, if you are particularly
concerned about liability you can pay extra for higher coverage and the same is also true of
temporary displacement coverage. While what I have outlined here, provides you with a basic
framework for understanding the various components of homeowners insurance and the general
standards of the industry, the differences between individual policies can vary widely.
Consequently, it is important for those considering the purchase of homeowners insurance that
looking into the particulars of what has been covered here be made a priority. Only by
understanding the precise offerings of competitors policies and understanding their functions, can
you the customer come to find the policy that best suits your needs and those of your
family.
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