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Homeowners Insurance - Basic Information

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Homeowners insurance offers protection against disasters. A regular standard policy insures your home itself and the items you keep in it. Homeowners insurance is a package policy. It covers both damage to the structure of your home on your property, your personal belongings and your liability or legal responsibility for injuries and property damage you or members of your family cause to other people. This includes damage caused by some household pets. Some policies have exclusions regarding certain breeds or types of pets. Be sure to ask which ones. Additional living expenses are also covered in the event you are temporally unable to live in your home because of fire or other insured disaster. Homeowners' Insurance also provides no-fault medical coverage. If someone is injured in your home the medical bills are submitted to your insurance company. This avoids a liability claim being filed against you. This medical coverage does not cover you or your family.

There are exceptions in most homeowner's policies. The most important to note is damage caused by floods, earthquakes and poor maintenance. You will have to purchase separate policies for flood insurance if you live in a flood zone and a separate policy for earthquake insurance. It is the homeowner's responsibility to take care of all maintenance problems. Generally, homeowners' policies cover damage to just about everything unless an item is specifically excluded. That is why it is important to know and understand exactly what is NOT covered.

There are different levels and types of policies. Some are cheaper policies and some are barebones. There are policies for renters and a separate one for condominium owners. An HO-3 policy is the most commonly issued homeowners policy. It covers the house and other structures for all risks except those excluded.

Your level of coverage for damage caused by disaster under your policy may be one of the following options. It is your choice if the insurer offers them all.

Actual Cash Value- This policy pays to replace your home or possessions minus a deduction of depreciation
Replacement Cost- Pays the cost of rebuilding/repairing your home or replacing your possessions without a deduction for depreciation.
Guaranteed or Extended Replacement Cost- The guaranteed replacement cost policy would offer the highest level of protection. This would pay whatever it would cost to rebuild as it was before the disaster, even if it exceeds policy limits. It generally will not cover costs to bring the house up to current building codes. Get an addition to the policy to help pay for these costs. An extended policy pays a certain percentage over the limit to rebuild, generally 20-25% more than the policy limit.

Liability protection covers lawsuits for property damage and bodily injury family members cause to other people. If your children run through your neighbor's home and break all of their lamps or your dog chews up your neighbor's favorite chair, you are covered. This does not cover what your children and pets destroy in your own home. Your liability insurance pays for defending you in court and any court awards, to the limit of your policy. This policy covers you anywhere in the world. Liability limits start at around $100,000 but it is better to obtain at least $300,000. You can purchase excess liability coverage which may provide broader coverage.

Additional living expenses generally cover the costs of living away from home. It will cover hotel bills, food and other living expenses. This coverage differs between insurers and you can increase this coverage for an additional fee. If you rent out a portion of your home this coverage will also reimburse you for the rent that you have lost because of a disaster.

Your personal belongings are covered up to a certain percent of the amount of coverage you have on your home. The best way to determine if this is enough is to do a household inventory. Your belongings are insured anywhere in the world unless you opt-out of this coverage. If you have expensive jewelry, art work or other items you may want to look at additional insurance for full value replacement.

Few homeowners read the insurance policy that protects the biggest investment they will most likely ever make. Knowing what is covered and what is not can make the difference when disaster strikes.

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