Typically, homeowners insurance covers damage to the interior and exterior of your residence, theft or loss of your possessions, as well as third-party injuries or property damage.
Here’s a detailed look at the three areas covered in a typical homeowners policy.
Coverage for Exterior and Interior of Your Residence
Your homeowners’ policy covers repairs or rebuilding costs in case your home is destroyed or damaged by any of the perils listed in your insurance policy. These perils may include fire, hurricane, lightning, hail, theft, vandalism, and more. Many policies also protect detached structures such as a garage, gazebo, or tool shed, usually for up to 10% of your homeowners’ insurance limit. However, the standard homeowners’ insurance policy doesn’t cover damage caused by natural disasters such as earthquakes and weather-related flooding, as well as damage caused by wear and tear and poor home maintenance.
Coverage for Personal Belongings
Homeowners insurance covers your personal items like clothes and furniture in case you lose them due to a covered peril. Typically, the coverage limit for your belongings is between 50% and 70% of your insurance coverage for the structure of your residence. To figure out if this coverage is adequate, you should create a home inventory, says the Insurance Information Institute (III).
Personal belongings coverage covers even items stored outside the premises. Moreover, personal property coverage also offers a reimbursement of up to $500 if your credit cards are used without your authorization. Valuables such as art, jewelry, and collectibles are covered up to specified dollar limits. To insure these items based on their appraised value, you should buy specialized personal property floaters or endorsements, according to the Insurance Information Institute (III).
Liability coverage protects you against lawsuits resulting from property damage and bodily damage caused by you or members of your household, including your pets. You’re covered if your dog destroys your neighbor’s expensive carpet, or if someone slips and falls due to a loose rug in your living room. The liability part of your policy also covers legal costs as well as court awards and settlements, up to your policy’s liability limit.
Additional Living Expenses
Additional expenses/ALE covers the expenses of living away from your residence due to destruction caused by an insured peril. It covers your restaurant meals and hotel bills while your residence is being rebuilt.
Types of Homeowners Insurance Coverage
- Actual cash value – covers your home and its contents after deducting depreciation.
- Replacement cost – covers your home and its contents without factoring in depreciation.
- Extended/guaranteed replacement value/cost – This is an inflation-buffer policy that covers the cost of rebuilding or repairing your home even if it exceeds your policy limit.