Buying a home is exciting; it is also the biggest investment you will make in your lifetime. The better your coverage, the less you will have to pay out of pocket if disaster strikes. In general, homeowners insurance covers damage to your home caused by fire, theft and natural disasters. Home insurance also protects you from liability in the event someone is injured at your home or on your property. Buying insurance isn’t a major financial commitment, but it is something you should do to keep yourself and your family safe, and to ensure peace of mind.
If you are personally liable for damage to your home, liability coverage will cover you in this event. What about your most cherished heirloom? These things can ONLY be covered by personal property insurance. His protects your personal belongings and valuables.
What is the difference between homeowner’s insurance and a home warranty? A home warranty is NOT a substitute for homeowners insurance. A home warranty covers the physical parts of your home such as, the refrigerator and air-conditioning systems. Home warranties DO NOT cover losses or damage due to theft or unforeseen natural disasters. Ideally, you should have both – but if you can only afford one, homeowners insurance is the way to go – it offers the most coverage.
If you finance your home, your lender will most likely require you to have homeowner’s insurance coverage to protect your home in case of unforeseen disasters. Home inventory – you should create an up to date home inventory to expedite a claim settlement if you ever need to make one. With a complete home inventory, your insurance company can verify property easier, which makes settling your claim easier.
A few home inventory organization tips:
- Remember to list big-ticket items like jewelry, artwork and collectibles.
- Take pictures of rooms and important individual items.
- Videotape your home by walking through it and describing the contents throughout the house.
- Save an inventory list on your personal computer and store it on a separate disk or drive.
- Put all your photos, lists and videotape documentation in a safe deposit box.
Homeowners Insurance:
- Protect you from lawsuits – if someone is injured on your property – Liability coverage pays the injured medical bills and damages to property – will also pay attorney
- Protection from Loss – any damage to the main house, garage, property. Damage to plumbing, electrical, heating and permenantly installed air conditioning units – fences, sheds- anything on property
- Replace your things – Insure your belongings
- Protects equity – equity is the value of a piece of property over and above any mortgage or other liabilities relating to that property.
- Protects against natural disasters
- Reimburses you for hotels, meals and any other living expenses. Most insurance companies pay up to 20 percent of the coverage price for loss of use expenses. That means if your house is insured for $200,000, your loss of use coverage is approximately $40,000 [source: Home Insurance].
- Protection against robbery or theft – A homeowner’s policy will reimburse for the actual cash value or replacement costs, described previously. To make things go smoothly at the time of the claim, inventory all the costly items in your house. Not only document them on paper, but also take pictures and save receipts. I wouldn’t put the inventory on a computer — it might be stolen, too.
- Peace of mind – insurance companies are not doing you any favors. To them, you’re just a number. They don’t want to pay. Often, they’ll hedge, they’ll balk and they’ll say your contractor’s a crook. Keep in mind that it’s your money. Stand your ground. If you feel you’re being mistreated, call your state consumer protection or banking and insurance agencies.
You might assume you’re completely covered if anything bad happens to or in your home. Homeowners policies can differ and “magical thinking” can cost you if you have an unlucky day with the wrong homeowners insurance coverage.
Most home insurance policies are divided into four parts:
- Structure
II. Personal belongings
III. Liability
IV. Additional Living Expenses (ALE)
Within the four parts above, various items are covered. The table below shows what is usually covered under a standard homeowner’s insurance policy (HO-3). Whether or not an item is covered, the actual coverage limit and cost may vary between different home insurance companies.
| Homeowners coverage item | Coverage overview | Typical home insurance amount | Exclusions and Notes |
| ALE | Pays the additional costs of living elsewhere if your home becomes unlivable because of a fire, storm or other insured event.
ALE reimburses you for hotel bills, restaurant meals and other costs that exceed your ordinary living expenses until your home has been rebuilt or repaired. |
Limits for ALE vary by company.
Many policies include ALE up to 20 percent of the residence’s insurance. |
If a home becomes unlivable due to neglect, ALE benefits may be denied. |
| Landscaping | Covered events include theft, fire, lightning, explosions and vandalism. | Usually limited to 5 percent of the insurance on your building, up to about $500 per item. | Plants are not generally covered for wind damage or disease. |
| Liability protection | This pays for your legal defense and any court awards, in the event that you, your pets or other household members cause damage to others.
This coverage goes wherever you do; it’s not just for accidents on your property.,/p> |
Up to the limit of your policy.
Liability coverage amounts usually start at about $100,000. Your policy may also provide no-fault medical coverage if someone is injured in your home. Standard no-fault covered amounts range from $1,000 to $5,000. |
An injured party can submit medical bills directly to your insurer without filing a lawsuit. |
| Personal belongings | Your “stuff,” including furnishings, recreational equipment, clothing and appliances is insured if stolen or destroyed by a covered event.
Your property is also covered when off your premises–for example in a storage unit. |
Most standard policies limit personal property reimbursement to between 50 and 70 percent of your dwelling coverage amount.
Off-premises coverage may be limited to 10 percent of your total personal property insurance. |
Some policies provide up to $500 of coverage for unauthorized use of your credit cards. |
| Residence | This includes repairing damage to your home or rebuilding it when a covered event (fire, theft, vandalism, wind storms, frozen pipes or accidental damage) occurs.
Most standard policies also cover outbuildings, such as detached garages, tool sheds or gazebos. |
Outbuilding coverage is generally limited to 10 percent of the amount of insurance you have on the main residence. | This coverage does not extend to:
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Home insurance policies are not a license to neglect your property. Clair Jones, Home Insurance and Safety Specialist with SafeWise.com, warns, “Many homeowners find themselves in a tough situation because they don’t realize that homeowners insurance does not cover damage associated with lack of routine maintenance. Policyholders should be sure to do everything they can to keep their property safe, like testing smoke alarms and sensors, inspecting pipes regularly and checking roofing for leaks or sagging.”