What Is And Isn't Covered By Homeowners Insurance
Every insurance policy is different. Properly understanding what's covered requires the homeowner to ask a lot of questions and to read the fine print on his or her insurance policy. Though there are differences between policies, there are some things that almost all insurance policies will have in common.
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Homeowners insurance typically covers a broad range of possible damages. You can expect that your actual dwelling is covered, as well as some other structures on your property, like a garage, fence, driveway or shed. However, if you run a business on your property that's housed in a separate structure, this is generally not covered in the typical insurance policy.
Personal Property is typically accounted for in your policy as well. This is sometimes known as contents insurance. The amount of coverage for personal property may be limited on certain types of high-value items, like jewelry or artwork, unless additional coverage is purchased for these items. (To learn more about homeowners insurance, read The Beginner's Guide To Homeowners' Insurance.)
Replacement Cost Vs. Fair Market Value
Not all insurance policies offer homeowners the replacement cost of the property. Replacement cost helps to bridge the gap that can be caused by inflation. Otherwise, if a claim is made, it will be assessed at fair market value. Since some items depreciate quickly, this means that you may not get enough money from a claim to cover or replace the items that were lost or damaged. Coverage for replacement costs will ensure that you're able to replace the items that were lost, with similar items. If having this coverage is important to you, you'll want to be sure that both your home and personal property are covered for replacement cost.
Car Broken in at Home
Most homeowners insurance policies generally include coverage for personal effects and separate structures on your property, such as a garage or a workshop, but what happens if your car is broken into while it's on your property? This is where the distinction between your home and auto insurance policies can become a little blurry. Many home insurance policies will provide some insurance for personal items that are stolen from your car, but 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 for use in the vehicle exclusively. (For related reading, see Understanding Your Insurance Contract.)
Natural Disaster Coverage
A wide range of natural disasters are typically covered by your homeowners insurance policy, though not all of them. If you live in some regions, you'll want to be sure to inquire about things like tornado or earthquake insurance. However, the typical inclusions for natural disaster include fire, lightning, windstorm and hail. Your policy may also include coverage for smoke damage, or damage caused by falling items. Earthquakes and other natural movements of the earth are not typically covered by insurance policies, though you can purchase separate insurance to cover these types of events. (To ensure your assets are protected from natural disasters, read Preparing Your Finances From Natural Disasters.)
Flooding is much the same as earthquakes, when it comes to homeowners insurance. Flash floods and even sewer backups are not generally covered in basic homeowner insurance policies, though you can ask your insurance company about adding coverage to your policy, especially if you live in a region that is prone to flooding. (For related reading, see Understanding Lender-Required Flood Insurance.)
Most homeowner insurance policies include coverage for injuries incurred by those on your property where you are liable. This could include something like someone slipping on a patch of ice that's on your front walk, or falling as a result of a broken step on your porch. This coverage is usually limited to a certain dollar value, so you definitely want to know how much coverage you have and exactly what's included.
The deductible is the amount that the insured party has to pay when a claim is made. You can decrease your insurance costs by increasing the amount of your deductible, meaning you'll be required to pay more if you ever do have an incident that requires you to make a claim. Keep in mind that many mortgage providers require homeowners to carry a certain amount of insurance on their property with a deductible that's below a specified limit. Check with your mortgage provider before opting for the lowest possible rate with the highest possible deductible. It might be tempting to go for the lower rate, but if you ever do have to make an insurance claim, you might regret it, if you're responsible for a $10,000 deductible.
The Bottom Line
It may not seem like particularly interesting reading material, but it's a lot better to take the time to thoroughly read up on what your insurance policy covers, than to be stuck in a situation where you're not sure when you really need it. Ask your friends and family about what kind of insurance they have and what they're covered for. This might help you to determine if you really need flood or earthquake insurance, what kind of deductible is normal, or if you want to increase the amount of personal injury coverage you have. Don't forget to ask your agent whether you'll need to get additional coverage to cover your original Van Gogh painting or that giant diamond ring.
At the end of the day, doing your homework before purchasing a policy could really pay off, if you're ever stuck in an unfortunate situation when you actually need to rely on your homeowners insurance. (For related reading, see Do You Need Casualty Insurance?.)