What Does Homeowners Insurance Cover and Not Cover?

Homeowners insurance protects you financially from damages and losses to your home by a covered event. Homeowners insurance typically covers your home’s physical structure, personal belongings, and liability protection in case someone gets injured on your property. However, the coverage specifics can vary depending on the policy. Discover examples of what’s covered and not covered in a homeowners insurance policy.

Key Takeaways

• Most homeowners insurance covers certain basics, but policies vary, so read the fine print before you purchase one.
• Your homeowners insurance coverage may overlap with other types of insurance.
• All policies have deductibles before coverage of your residence’s structure and the property inside it kicks in.
• Damage or destruction due to vandalism, fire and certain natural disasters are all usually covered. So is your liability if someone is injured on your property.
• Certain catastrophes, like flooding or earthquakes, are generally not covered by basic homeowners policies and require specialized insurance.

What Homeowners Insurance Covers

Homeowners insurance typically covers a broad range of possible damages. Your actual physical dwelling and other structures on the property should be covered, like a garage, fence, driveway, or shed. However, if you run a business on your property in a separate structure, homeowners insurance generally does not cover it.

Personal property is typically accounted for in your policy as well. The specific protection for it is sometimes known as contents insurance. Coverage may be limited on certain high-value items, such as jewelry or artwork. Instead, you may need additional coverage for such assets. As a result, when policy shopping, don’t forget to ask your agent whether you’ll need additional coverage to cover your belongings.

Replacement Cost vs. Fair Value

Not all insurance policies offer homeowners the replacement cost of the property. Buying coverage for replacement cost helps to bridge the gap caused by inflation and the loss of value when the property is no longer new. Otherwise, the item in question will be assessed at the current fair market value when you claim a loss.

Since some items depreciate quickly, you may not get enough money from a claim to replace the items that were lost or damaged. Replacement-cost coverage ensures you’re able to replace the items that were lost with similar items. If this coverage is important to you, you’ll want to be sure your home and personal property are covered for their replacement cost value.

Car Coverage

Most homeowners insurance policies include coverage for personal effects and separate structures on your property. However, what happens if your car is broken into while it’s in your driveway or garage? This is where the distinction between your home and auto insurance policies can become a little blurry.

While homeowners insurance won’t cover damage to the car itself, many policies will provide some coverage for personal items that are stolen from it. However, some of the more comprehensive auto insurance policies may cover this, too. Insurance companies may also limit the coverage available through your policy if the items stolen were purchased exclusively for use in the vehicle.

Fire Coverage

House fires are one of the most common causes of damage to homes, and almost every homeowners insurance policy protects structures and belongings against them. If a home is a total loss due to fire, most standard policies that cover fire also cover the cost of additional living expenses, such as hotel stays, rentals, or food and restaurant bills. 

Natural Disaster Coverage

Your homeowners insurance policy typically covers a wide range of natural disasters, though not all of them. The typical inclusions for natural disasters include lightning, thunderstorms, hurricanes, and hail. Your policy may also include coverage for smoke damage, damage caused by falling items, or severe winds.

Most homeowners insurance policies do not cover earthquakes and other natural movements of the earth. If you live in a high-risk region for these or other types of natural hazards, you may want to explore catastrophe insurance, like windstorm or flood insurance.

If your home is at risk of damage from hurricanes, it’s essential that you have enough insurance coverage in place to protect your property. Your standard homeowners policy may not cover all hurricane damage, but you may consider purchasing a hurricane policy that supplies this additional protection. These policies often match the coverage of your homeowners insurance.

Flood Coverage

Flooding caused by an interior problem, like a leaking pipe or an overflowing toilet, is generally covered by homeowners insurance. However, flooding due to external conditions is much the same as earthquakes. Whether the causes are natural (rising rivers, flash floods) or man-related (burst dams, sewer backups), they are not generally covered in basic policies.

You can ask your insurance company about adding coverage to your policy or (more likely) buying separate flood insurance, especially if you live in a region prone to flooding. If you have an outstanding mortgage loan on the property, your mortgage lender may require you to buy flood insurance.

Vandalism Coverage

Vandalism is generally covered under an all-risks or all-perils policy unless specifically excluded. Vandalism coverage applies to unoccupied homes but not to vacant homes after a certain period of time. An unoccupied home is one that still contains the personal property of the policy owner, even though the property owner is absent.

A vacant home is empty and free of the owner’s personal property. An example of this would be if you were selling your home and moved out, taking all of your belongings and furnishings with you. After a set period of time, vandalism coverage would no longer apply to your policy.

Personal Injury

Most homeowners insurance policies include coverage for injuries incurred on your property where you are liable. Covered events for personal injury could consist of someone slipping on a patch of ice on your front walk or falling due to a broken step on your porch.

Personal injury coverage is usually limited to a specific dollar value. As a result, it’s important to know your specific coverage amount and what’s included. Umbrella insurance can provide additional liability coverage if needed.

What Is a Homeowners Insurance Deductible?

The deductible is the amount of money you must pay out of pocket for a claim. You can decrease your monthly insurance premium by increasing your deductible. However, a higher deductible means you’ll pay more if a covered event occurs that requires you to file a claim.

For example, if you choose a $10,000 deductible and a covered event occurs that costs less than $10,000 to repair, you’ll be responsible for paying 100% of the repair costs.

Keep in mind many mortgage providers require homeowners to carry a minimum amount of insurance on their property with a deductible below a specified limit. Check with your mortgage provider before opting for a policy with a low monthly premium and a high deductible.

What is the 80% rule in Homeowners Insurance?

Insurance companies often follow the 80% rule, which states that a homeowner must purchase coverage for at least 80% of the house’s total replacement value, or they will not be fully covered. The insurance company will instead only reimburse a proportionate amount of the costs.

How do Insurance Companies Determine the Value of a House?

Insurers determine the value of a house by using several factors, including location, size, condition, age, and nearby property values of recently sold homes.

What Is the Most Basic Home Insurance Coverage?

The most basic type of home insurance coverage is the HO-1 policy, which only includes dwelling coverage. It protects the home from specific perils listed in the policy. However, insurers do not usually offer HO-1 policies.

The Bottom Line

It’s important to understand what’s covered and not covered in your homeowner’s insurance policy. Be sure to review your dwelling and personal property coverage to determine the covered perils, such as hurricanes, frozen pipes, theft, vandalism, and fire. Check with your insurer if you have enough personal liability protection, and ask your mortgage lender for the required minimum coverage levels. Understanding what’s covered and not covered can save you thousands of dollars in the long run.

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