Homeowners insurance: What's covered, what's not, and what to
look for
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 guidelines hold true for most policies, the
variance between insurance providers is significant enough that
you should investigate the particulars of what is covered, and
more importantly what is excluded regarding coverage for the
structure of the home.
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 can only be attained if the causal factor (i.e. fire)
was covered in the first place.
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.
Temporary 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 benefits, no matter the costs you may still
be incurring.
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.