Homeowners who read their insurance policy often come away more confused than when they began. As such, many are unaware of the coverage it provides. Yes, it covers fire damage. No, it won’t pay to repair moldy drywall due to the leaky sink that you’ve procrastinated getting fixed for the last decade. Though these examples seem obvious, policy coverages differ. What you believe to be covered may not be, and vice versa. On top of that, a policy from one insurance carrier will differ from another. Let’s decode what a typical homeowners insurance policy provides.
Property and Liability
Homeowners insurance primarily provides two coverages: property and personal liability. Property coverage protects the physical structure and contents of the home and other buildings on your property, such as barns, sheds, and outbuildings. Personal liability provides protection should you hurt other people or damage their property. We will provide examples to clarify, but first a question:
Who is Covered?
You? Your spouse? Great aunt Mildred visiting at Christmas? There is no need to guess as each homeowners insurance policy defines who it protects. A typical policy automatically covers you and your spouse, if living in the same household. It also protects relatives living with you as well as people under 21 in the care of those just mentioned. Those covered under the policy enjoy the protections it provides.
Most policies extend to cover a full-time college student under the age of 26 as well. However, if this situation is a concern for you, clarify with your insurance agent as this coverage is not guaranteed.
Property coverage protects the home itself, outbuildings, and personal belongings.
A homeowners insurance policy pays to repair or rebuild the structure of the home if it is damaged or destroyed. Most policies also cover detached structures, such as a garage or tool shed. However, the coverage for these structures is usually limited to only 10 percent of the coverage on the house. Thus, if you insure your home for $200,000, only $20,000 protects your detached garage and barn. If that amount is not sufficient, contact your insurance agent to increase protection.
Furniture, clothes, electronics, sports equipment, collectibles, and other personal items are covered by a homeowners insurance policy. The protection is typically limited to 50 to 70 percent of the insurance on the house. This is a common area where underinsurance is an issue. Personal belongings tend to grow over time and you may be surprised at their value when a loss occurs. A good way to determine appropriate coverage is to create an inventory. List and add up the cost to replace items.
Exclusions and Limitations
The following are covered on most homeowners insurance policies, but with a sublimit that may prove inadequate. Again, ask your insurance agent to ensure you have appropriate protection.
- Items stored off-premises
- Fine arts
- Wine collections
- Furs and fine clothing
- China and crystal
- Books and manuscripts
- Musical instruments
- Miscellaneous collections
Your homeowners insurance policy defines the perils against which it protects. Standard perils include:
- Fire and smoke
- Windstorm, including hurricane
- Weight of ice, snow, or sleet
- Water damage
Note that flood and earthquake are not covered. Some policies may be expanded to cover these perils, or separate policies may be necessary.
Personal liability is the least understood homeowners insurance coverage. Though claims for personal liability are rare, they can be extremely costly. This protection covers liability associated with accidentally hurting someone or damaging their property. Possibly the best way to illustrate this valuable coverage is through claims examples:
Your daughter volunteers to help a classmate complete a physics lab after school. Late that night, the lab burns down. Fire inspectors determine the cause was a solder iron left plugged in. The school’s insurance company sues you to collect damages due to your daughter’s involvement.
While hosting the yearly neighborhood Christmas party, a guest falls from your deck and sues for injuries, alleging the railing gave way and caused the fall.
Friends come to visit your home and the kids enjoy a few hours on the trampoline (or in the swimming pool, or in the weight room, or just about anywhere). One of them jumps off and breaks a leg and three ribs. A lawsuit arises, alleging the trampoline’s safety features were not installed properly and that no operating instructions were provided.
That’s Not All…
Homeowners insurance policies provide many other protections. For more information, visit Home Insurance or Contact your Bankers Insurance agent with questions. They will help determine your risks and advise regarding how to cover them. Not a client of ours? Let us compete for your business! Each of our clients is assigned a personal insurance agent and provided their email address as well as a phone number that rings right on their desk.