Home insurance is a package policy that provides financial protection for your home and your personal property inside it. The policy also protects the homeowner and their family from being liable or responsible for injuries or damages to others and their property. A number of different things fall into those categories, but we’ve detailed the coverages below so you know what’s covered and what isn’t.
Perils that Homeowners Insurance Protects Against
There are 16 common perils or disasters that can affect homes. These can range from the natural disasters to crimes committed by others. Most policies will cover any damage as a result of any one of the 16 common perils which are: fire or lightning; windstorm or hail; an explosion; riot or civil commotion; damaged caused by aircraft; damage caused by vehicles; smoke; vandalism or malicious mischief; theft; volcanic eruption; falling objects; weight of ice, snow or sleet; accidental overflow of water from within a plumbing, heating air conditioning or automatic fire protection system; sudden and accidental tearing apart, cracking, burning or bulging of a steam system, heating system, air conditioning or automatic fire protection system; freezing of plumbing and other systems; and damages from artificially generated electrical currents.
What Homeowners Insurance Covers
Here are the main coverage types that a standard home insurance policy can have. In most policies, what is covered is explicitly listed out, and can be grouped into the categories below. There are a number of perils or additional protections that aren't usually included in policies by home insurance companies (we'll go into that below). Home insurance companies will pay out for any claims covered net of your deductible.
The Structure of the Home
Sometimes called the “dwelling,” this part of the policy covers physical damage to the home itself. Damage to any walls, the roof, floor or doors are examples of things covered under the structure of the home. The foundation of your home and other parts that might not necessarily be visible are also covered. In addition to the home, most policies also will include detached structures such as a garage, shed or gazebo.
Homeowners insurance covers the personal belongings of the insured no matter where in the world the belongings are located - not just inside their home. It also covers the belongings of others under two circumstances: the personal belongings of those who live on the policyholder’s property, as long as the belongings are on the property, and the belongings of guests while the policyholder is present.
Personal belongings include things such as furniture, electronics, clothing, sporting equipment, watercraft, silverware, firearms, furs and jewelry. Trees, plants and shrubs also are covered in the event of all perils, except wind damage and disease.
Documenting the belongings you own is critical to making the most out of your homeowners insurance protection. Most people are unable to recall all of their possessions in the event of a partial or total loss. For that reason, policyholders need to inventory their belongings they would claim if damaged or lost due to a peril. The inventory of belongings should include photos or video of the items as well as any receipts and proof of purchase to attach, which is much easier in this current age of smartphones. It is also a good idea to let your insurance company know about any items that are individually exceptionally valuable, such as jewelry, special collections or artwork. Once the inventory is complete, store it digitally online or a hard copy at a location other than your home.
This coverage protects the policyholder and their family members (including pets) from lawsuits for bodily injury or property damage that they are to blame for. It will pay for court costs as well as any awards you’re ordered to pay in court, up to the limit of the policy. The liability portion of your homeowners insurance also travels with you and your family members to your neighbors' house or anywhere else in the world.
For example, if you spill a glass of wine and ruin a neighbor's rug, homeowners insurance would cover the cost. It will not cover your own rug you if you spill wine and ruin it. If you're hosting a party and you spill wine on your neighbor's authentic fur coat, that'd be another liability situation created that home insurance could cover. Another example would be if your dog bites someone - home insurance would cover that incident. If you are bit by your own dog, homeowners insurance will not cover that incident.
Homeowners insurance also provides no-fault medical coverage, meaning if a friend or neighbor is injured in your home, they can submit medical bills to your insurance company. This allows their expenses to be paid without filing a liability claim against you. This portion of the policy will not cover medical bills of the policyholder, their family or pets - for that you'd have to turn to your health insurance or pet insurance if you have any.
Additional Living Expenses (ALE)
Sometimes shortened to ALE, this portion of home insurance policies covers the cost of staying elsewhere if your home is damaged beyond a point it is livable. ALE covers things like hotel bills, restaurant meals and other expenses.
For example, if an insured peril destroys the roof of your home you probably will need to find somewhere else to stay until it is repaired. ALE would cover the costs the policyholder incurred if they needed a hotel room and restaurant meals. An example of an additional expense might be the cost to wash clothing if you don’t have access to your washer or dryer.
Though it is a common coverage under a homeowners insurance policy, additional living expense coverage can vary greatly from company to company. Some companies provide expenses up to a certain total limit. Others do not have an expense limit but only offer the coverage for a limited amount of time.
ALE also will reimburse policyholders for rent payable to them. For example, say you rent part of your home but that portion of it became unlivable sure to a peril covered by your policy. In that circumstance, ALE would pay you the lost income from the tenant who had to relocate until the space was repaired, subject to the terms of your policy.
Other Protections Home Insurance Can Provide
Every insurance policy is different but there are other coverages homeowners insurance frequently provides. These are coverages one doesn’t typically think of when purchasing homeowners insurance, but it’s important not to forget about them, in the event you can ever use the coverage.
- Debris removal: Companies usually pay reasonable expenses to remove debris on property from a covered peril that caused a loss. Ash, dust and particles from a volcanic eruption that caused a direct loss or damage also fall under this category. Trees downed by a peril that are owned by either you or your neighbor are covered too.
- Grave markers: Homeowners insurance policies sometimes cover grave markers and mausoleums damaged or lost by a covered peril. The grave markers or mausoleums can be on or off the property of the policyholder's residence.
- Green home coverage: Also called “green improvement” or “green reimbursement”; This is an endorsement that allows a home to be rebuilt with green materials or items to be replaced with more energy-efficient versions in the event of a covered loss.
- Identity fraud: Coverage that protects a homeowner and pays to help them restore their identity in the event it is used fraudulently.
- Loss assessment: If a peril impacts your home or property covered by your homeowners insurance, you’ll have to have a professional damage assessment made. Depending on what is damaged and the extent of the damage, assessments might be costly. Thankfully, homeowners insurance policies frequently cover loss assessments up to a certain limit.
- Unauthorized use of credit cards: Most homeowners insurance policies cover unauthorized charges to of the credit cards of the policyholder. However, the limit on this is usually low ($500) and most credit card companies will remove unauthorized charges from your card once you report them.
What Homeowners Insurance Doesn’t Cover
There are a number of things homeowners insurance will not cover. Some are obvious and some aren’t so obvious. The two most important to take note of are earthquakes and floods. Both are common perils in some areas and have insurance products designed specifically for each one. Homeowners insurance exclusions also differ between companies and from state to state.
Some other things homeowners insurance will not cover include neglect or failure to make repairs, wear and tear, corrosion and rust, contamination, animals and pests, fungi, nuclear hazards, power failure, government actions and war.