What is Covered by Your Homeowners Insurance?

Homeowner’s insurance pays for losses and damage to your property if something unexpected happens, like a fire or burglary.  Home insurance isn’t a legal requirement, but most lenders require home insurance if you have a mortgage to make sure your property is protected. What is covered by homeowners insurance? What should you look for when searching for the best homeowners insurance for you and your family? 

Many homeowners pay for their homeowner’s insurance through an escrow account as part of their monthly mortgage payment. You make the payments to the lender, and the lender holds the part of the payment that is for insurance in an escrow account. Then, when the bill for the insurance is due, the lender pays it from the escrow account.

The average cost of homeowners insurance in the United States is $1,428 per year for $250,000 in dwelling coverage.  However, home insurance costs vary depending on location, coverage limits, credit score, claim history, and other factors. 

What is Covered by Homeowners Insurance? 

Although they are infinitely customizable, a homeowner’s insurance policy has certain standard elements that provide what costs the insurer will cover.

Damage to the Interior or Exterior of Your House

In the event of damage due to fire, hurricanes, lightning, or other covered disasters, your insurer will compensate you so your house can be repaired or even completely rebuilt. Destruction or mutilation from floods, earthquakes, and poor home maintenance is generally not covered and you may require separate riders if you want that type of protection. Freestanding garages, sheds or other structures on the property may also need to be covered separately using the same guidelines as for the main house. 

Clothing, furniture, appliances, and most of the other contents of your home are covered if they’re destroyed in an insured disaster. According to the Insurance Information Institute, most insurance companies will provide coverage for 50% to 70% of the amount of insurance you have on the structure of your home. For example, if your house is insured for $200,000, there would be up to about $140,000 worth of coverage for your possessions.

Personal Liability for Damage or Injuries

Liability coverage protects you from lawsuits filed by others. If someone gets hurt while on your property or you are found at fault for damage to someone else’s property. Your liability coverage might help pay for their expenses. This clause even includes your pets! So, if your dog bites your neighbor, no matter if the bite occurs at your place or hers, your insurer will pay her medical expenses.

Hotel or House Rental While Your Home Is Being Rebuilt or Repaired

Homeowners insurance generally covers additional living expenses you incur while repairs are being done meaning, you would be reimbursed for the rent, hotel room, restaurant meals, and other incidental costs you incur while waiting for your home to become habitable again. keep in mind that policies impose strict daily and total limits, however you can expand those daily limits if you’re willing to pay more in coverage. 

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What Does a Homeowner Insurance not covers?

While homeowner’s insurance covers most scenarios where a loss could occur, some events are typically excluded from policies. Natural disasters such as, damage caused by flooding is typically excluded and can be obtained by purchasing a flood insurance policy. Earthquake damage is also typically excluded, but it can be added as an endorsement.

Types of Homeowners Coverage

There are several forms of homeowners insurance that have become standardized in the industry; they are designated HO-1 through HO-8 and offer various levels of protection depending on the needs of the homeowner and the type of residence being covered. A HO-3 policy is the most standard policy type for homeowners insurance coverage.

Each policy type comes with different covered perils, or differs with how perils are covered in a claim. 

On average, policy coverage includes:

  • Dwelling coverage
  • Other structures coverage
  • Personal property coverage
  • Liability
  • Medical payments
  • Additional living expenses

Homeowners insurance provides valuable protection for the physical structure of your home, your personal belongings, and your liabilities. It’s important to choose the best policy for your needs. Here are some steps for choosing the best homeowners insurance policy.

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How to Choose the Best Homeowners Insurance 

  • Evaluate your coverage needs: Think about what types of coverage and how much coverage you need. If you have a pool or trampoline in your yard, you might want higher liability coverage limits. 
  • Shop around and compare several companies before selecting a policy.
  • Read the fine print: Every home insurance policy is slightly different. It’s a good idea to review the fine print before purchasing coverage. Know what’s covered, what’s not covered, and if there’s a separate deductible for natural disasters.

Bottom line

Choosing the best homeowners insurance is a vital tool for protecting your most valuable asset.  If you have a mortgage, your lender will require you to have a homeowner insurance. As you shop for homeowners insurance, it’s important to recognize that not all policies are the same. It is important to understand what is covered by your homeowners insurance. What’s included in basic coverage, and what’s available as an add-on, will depend on several factors.