Homeowners insurance is a contractual agreement between the insurance company and yourself outlining circumstances within which you can be compensated for theft and damages to your home. It is divided into property and liability protection. Property protection includes dwelling, personal property, loss of use, and other structures coverage. Part two, liability protection, includes medical payments, liability, and personal liability coverage. The homeowners’ insurance cover, however, comes with several exclusions. Here are seven home insurance coverage items you should know.
1. Dwelling Cover
This is the most essential cover for your home in real estate law. It’s also known as hazard insurance. Its goal is to pay for physical damages to your home if the damage was caused by a hazard within the policy’s coverage, such as damage from a fallen tree or fire. Under this cover, you can be reimbursed for three home insurance coverage items.
The first is replacement cost coverage, under which you’re paid to repair your home using the same materials it had before the damage. When purchasing home insurance coverage items, the trick is to ensure you have adequate resources to cover the cost of rebuilding your home if it’s destroyed. In other words, you want assurance that you’ll get your house back in precisely the same shape it was (or better) should it be destroyed by a hazard covered in the policy.
Next is extended replacement cost, which gives you extra funds to repair should the dwelling coverage not be adequate. For instance, a sudden rise in labor costs or materials could render repairing your house more expensive than anticipated. However, this extra cover is capped, for example, at 25% above the dwelling coverage amount.
Finally, a dwelling cover may offer guaranteed replacement costs. It covers all the costs of replacing or repairing your home. It is the highest level of coverage. Only a few insurance companies are willing to provide this cover, making it difficult to find. It’s one of those things that should make it into the estate planning law to protect beneficiaries after one has died.
Among items covered by a dwelling coverage is your home’s structure, including the roof, windows, floors, and walls. Also included are furnaces and other built-in appliances, such as cabinets. The deck or porch and your garage are also taken care of by the dwelling cover. This is crucial since hiring a garage door repair company or a deck repair service isn’t cheap.
2. Other Structures Cover
Your home or dwelling has many other structures besides the house. These include a detached garage and a porch, also known as a deck. A structure must be separate from your home to qualify for this cover.
Other home insurance coverage items that qualify under this category include a fence or a shed, but they must be detached from your house. However, a roof is not covered since it’s part of the house, but it helps to keep up with roof inspections in case a replacement is needed. You might be called upon to demonstrate that the damage to the roof wasn’t caused by negligence.
A homeowners’ insurance policy will likely cover the damaged structures unless an event is expressly excluded. For instance, if a covered peril such as snow or fire causes your fence to collapse, the homeowner’s insurance will pay the repair cost, less your deductibles.
There are several limitations to the “other structures cover.” For instance, it doesn’t cover items within the structures. So, if you have sporting items, a lawn mower, or tools inside a covered structure such as a shed or garage, the insurance company won’t compensate for those items. Such items are covered in Coverage C, the personal property coverage.
Other items not covered by this policy include detached business structures. These are structures you use for purposes of running a business. For instance, a rental or business cover is recommended if you’ve built a guesthouse in your home that you rent out via Vrbo or Airbnb.
Other structures that this insurance doesn’t cover include animals, ranching, and farming activities. For these, consider taking an extra ranch or farm insurance policy. Also, not covered is an attached garage since it’s considered part of your home, in which case the dwelling coverage protects it.
Home insurance coverage items, for instance, damage caused by perils such as flood or any other that your home insurance policy doesn’t cover, aren’t protected by “other structures” insurance. Also excluded are natural wear and tear as structures deteriorate with time.
3. Personal Property
Personal property insurance is among the most critical home insurance coverage items your policy must have. It covers items such as clothes, appliances, and furniture against loss or damage due to a covered peril, such as fire or theft. The cost of these items is high, but personal property insurance will cover their replacement. If a covered peril causes damage to your belongings, the insurance company will pay for its repair or replacement.
Among personal property items are rugs, furniture, pans and pots, jewelry, electronics, clothes, decorations, and other little knick-knacks you usually keep in your house. Usually, personal property coverage is calculated at 50% to 70% of the dwelling coverage. Let’s say the insured value of your house is $300,000 with personal property of 50%. The implication is that you’ll be compensated for personal property up to a maximum of $150,000. You can, however, purchase as much personal property coverage as you want.
The trick is to calculate the cost of everything in your home should it be destroyed by a natural phenomenon such as a fire or tornado, where not even a fire sprinkler training video can help. Having a home inventory is helpful in this case. The inventory should feature a description, purchase date, receipts, estimated value, and serial numbers.
You can make it as simple as a video, pictures, or a list. You can also use a mobile app for the inventory or get relevant services, such as drywall companies, to come over and estimate how much they would charge for every part of your home if a covered disaster destroyed it. Items such as electronics, jewelry, or musical equipment are covered to a specific limit in case they are stolen.
For extra coverage, consider scheduling the high-value items. Scheduling an item implies adding it to the policy. One reason for scheduling an item is a situation beyond your personal property coverage limit. Note that you’ll pay a higher premium for scheduled items, but it also means you’re adequately covered. The insurance company requires an appraisal and a clear picture of the scheduled item.
4. Loss of Use
Loss of use is also known as ALE, an acronym for Additional Living Expenses insurance. It’s also variously referred to as Coverage D, and among the home insurance coverage items it covers are your living expenses at reasonable costs if a peril makes your home inhabitable, forcing you to live elsewhere as you wait for the contractor to restore your home. You’ll need accommodation and meals during this time, and this is where ALE insurance kicks in.
ALE is calculated at a certain percentage of the dwelling coverage. Take, for example, a 30% loss of use. If your dwelling coverage is $450,000, you’ll be eligible for $135,000 in living expenses. Loss of use coverage applies only to home damages or losses covered by a peril. Take, for example, a situation where your home is not covered against floods. You can’t lodge a loss of use claim if your home gets flooded.
This coverage doesn’t compensate you for expenses you used to pay for before the loss. For instance, it won’t cover your insurance premiums, mortgage payments, childcare costs, etc. Remember that protection under loss of use covers extra expenses you’re incurring by not being able to live in your home. Let’s say you were spending $400 a week before the calamity forced you to move out of your house, and your current living expenses amount to $600; the loss of use cover will pay the extra $200.
5. Additional Homeowner’s Insurance
Most home insurance coverage items are a determined inflexible percentage of the total home insurance. For instance, unless you pay extra to raise the value of contents coverage, it’s fixed at 50% of your home’s insurance. For instance, if you’ve insured your home for $200,000, the contents value is $100,000 if you don’t pay extra to increase it.
You’ll need flood coverage for protection against flooding. Unfortunately, flood coverage isn’t a part of home insurance unless you specifically ask to include it at an extra premium. Flood insurance is critical if your home is in a flood-prone area.
Earthquake insurance is another hazard not included in the typical home insurance policy. You can, however, pay an additional premium to protect your home in case an earthquake damages it. If you live in an area with many seismic activities, consider paying the extra premium.
Part two of home insurance coverage items protects against liability should a peril covered by your policy destroy your home. This includes medical and liability insurance.
6. Medical Payments
This cover pays the medical bills of people accidentally injured on your premises. It doesn’t include your household members. It’s irrelevant who was responsible for the injury as long as it happened on your property.
Medical payments are a compensation or financial shield for minor injuries. Sometimes, it might keep someone injured on your property from seeking further compensation or suing you. See it as a way to help an injured person with medical bills, especially if they don’t have health insurance.
The policy only covers minor injuries on your property or the adjacent property, such as a sidewalk or an alley. It can also pay for damages from your home, such as your dog attacking and biting someone in the park. This policy covers between $1,000 and $5,000.
As you can see, the amount can only cover minor injuries, but you can raise the limit by paying a little extra. The coverage pays medical expenses incurred within at least a year that are “reasonable and necessary.” It can, however, be extended beyond one year. In an accident, the coverage applies differently to the injured instead of offering a blanket cover.
Typical expenses a medical payment covers include funeral services, ambulance rides, X-rays, physical therapy, surgeries, hospital stays, and ER visits. Here’s an important thing to note: Homeowners insurance policy deductible doesn’t apply to claims submitted under this coverage. If someone claims to have been “injured” in your home, document the circumstances around the event to clear potential confusion later if they try to twist details of what occurred.
For instance, if someone claims your icy sidewalk was the cause of their accident, and you have video or photo evidence that your sidewalk was dry at the time, and the asphalt company can confirm it was built to the highest standard, no medical payments will be made to them. Don’t confuse liability coverage with medical payments coverage, even though it’s easy to do so. Both are third-party policies you pay for but don’t benefit from directly.
Both cover injuries to guests, but liability coverage has a higher coverage limit and only kicks in if you or a family member are legally liable. Another difference between the two is that a liability policy covers property damage. A medical payment cover doesn’t. A liability policy also covers the legal cost of a liability case against you.
Liability insurance covers payouts and legal costs you’re responsible for should you be found legally liable. However, contractual liabilities and intentional damage are excluded from liability insurance coverage. The liability insurance compensates for property damage or injuries you and your family are responsible for.
You’ll be paid by homeowners’ liability insurance for legal defense if you’re sued by someone else for damage or injury covered by your home insurance. For instance, if someone slips and falls on your icy sidewalk, hurting themselves, your home insurance cover should pay them. Another classic case of liability insurance is where your dog injures someone by biting them, or it destroys someone else’s fence. Or a tree branch on your compound falling and destroying the neighbor’s gutter system.
If you’re a business owner and one of your employees is injured at the workplace, the policy pays them out, not you. As a doctor, you’ll make decisions that sometimes result in unintentional accidents. You need a liability insurance cover that indemnifies you against litigation and attendant consequences.
No matter how well cared for your home is, you can’t be insulated against disaster, even after regularly conducting air conditioning maintenance and repairs. In some cases, it’s not a matter of ‘if’ a disaster will strike; it’s a matter of ‘when,’ and the only way you can protect yourself is by taking a home insurance policy that can at least restore you to the point you were at before the calamity struck.