What is homeowners (home) insurance?
Homeowners insurance is typically a packaged policy that provides coverage for the structure of your home, personal property, loss of use and personal liability. There can be a large difference in homeowner policy types. Most companies are issuing a named peril (risk) coverage form, meaning they specifically state what is covered. It is very important to understand the language in the contract you buy and especially find out what the coverage restrictions are on both the dwelling and personal property.
Is it required to have home insurance?
If you have a loan on the property, the mortgagee will most likely make you insure the structure. The mortgage company has an insurable interest in the property and makes most homeowners insure the dwelling.
What types of coverage does a home insurance policy have?
Home and property insurance provides coverage to the dwelling. Typical language in an insurance contract refers to “direct physical loss” to the structure. However, be careful to understand that an insurance policy does not cover everything. Most contracts exclude water damage completely or pay for water coverage only when resulting from certain types of incidents. Cosmetic hail exclusions are also becoming more popular. Make sure to read the exclusions and endorsements on the policy in order to understand the coverages.
Home and property insurance does not include earthquake, flood or wear and tear. One loss that we see quite frequently is a leak that causes water damage over the course of time. Insurance contracts typically cover losses that are “sudden and accidental.” It is very important to analyze the policy for language to verify what is covered. Some policies do not cover any water damage – period!
Your home insurance policy will specifically state what it deems as personal property. Most clients think of clothes, furniture, dishes and jewelry as examples of personal property. Personal property does not include autos, although some contracts will cover auto parts and trailers on the premises. All policies will have a sublimit of coverage for certain items. Firearms, jewelry, fine arts and sports cards are examples of personal property that include a specific amount the policy will pay. There is almost always a reduction of coverage on certain items for theft. Make sure to talk to your local agent to help understand policy limitations.
Personal liability is meant to provide you protection in case of lawsuits. Most clients understand that if someone gets hurt by accident on their property the liability coverage will most likely provide coverage. However, personal liability goes beyond the property providing protection. Most policies have worldwide protection, so if you or an immediate family member accidentally causes injury or damages property the personal liability can provide protection. There are many exclusions with regards to personal liability coverage. A newer exclusion on some contracts are certain breeds of dogs. Read your policy and ask your agent for specific coverage information.
Medical payments provide coverage to a guest at the house if they have a minor injury. Most of the claims we see here are slip and fall, or a grandchild tripping down some stairs. Homeowners insurance policies typically have limits of $1,000 or $5,000 per occurrence.
Additional Living Expense (ALE)
Home insurance will pay for ALE if the home experiences a covered loss and you are not able to live in the property. Fires and tornadoes represent typical claims that result in using this coverage. The coverage typically pays for renting a new home while your home is being rebuilt and will pay for additional costs incurred from not being able to live in your house.
Sewer and Drain Backup
Most policies will let you add sewer and drain backup coverage. This coverage does not come included on a base policy and must be added with an endorsement. If the sewer backs up over a toilet, shower or floor drain and causes damage to flooring, sheetrock, water heater or personal property the main dwelling coverage will not pay for the loss. Sewer and drain backup is the coverage needed to cover these losses.
There are many other coverages that can be offered as part of a homeowners insurance package. We suggest that people get advice from a local agent in order to buy an insurance policy that provides personalized protection.