What is homeowners insurance?
Homeowners insurance pays out if an event covered under your policy damages or destroys your home or belongings. It will also cover you in certain instances if you injure someone else or cause property damage. Homeowners insurance has four main functions:
• Repair your house, yard and other structures.
• Repair or replace your personal belongings.
• Pay for you to live elsewhere while your house is being repaired.
• Cover personal liability if you’re held legally responsible for damage or injury to someone else.
Your home is more than just a roof over your head. It may be your most valuable asset — and one you likely can’t afford to replace out-of-pocket if disaster strikes. That’s why protecting your place with the right homeowners insurance coverage is important.
Is homeowners insurance required?
Homeowners insurance coverage isn’t required by law, but if you have a mortgage, your lender will likely require you to insure the home to protect its investment. Even if you don’t have a mortgage, home insurance is almost always a wise purchase. Because it gives you property and liability coverage, a homeowners policy is a financial safety net you may someday be glad to have.
What does homeowners insurance cover?
Standard homeowners insurance policies generally include six types of coverage. Here they are at a glance:
Dwelling coverage covers the structure of your home, including the walls, floors, windows and roof. Built-in appliances such as furnaces are also typically included in your dwelling coverage. If your home has an attached garage, porch or deck, these would fall under your dwelling coverage, too.
Which disasters are covered: In most homeowners policies, your dwelling is covered for any cause of damage that isn’t specifically excluded. Some of the most common causes of homeowners insurance claims include wind, hail, freezing, fire and lightning, according to the Insurance Information Institute.
How it works: A severe thunderstorm uproots a tree that falls onto your home, crushing part of the roof and attic. You’d pay your share of the repair cost — known as the deductible — then, the insurer would pay the rest, up to the limit of your dwelling coverage.
Other structures coverage
Just like it sounds, other structures coverage provides insurance for any structures on your property that aren’t attached to your house. That could include a shed, fence or detached garage.
Which disasters are covered: As with dwelling coverage, most homeowners insurance policies cover other structures for any disaster that isn’t specifically excluded. That means you’d likely have coverage for fire, wind, hail and snow, among others.
How it works: Part of your fence collapses under the weight of an unexpectedly heavy snowfall. The insurance company would pay the cost to repair it, minus your deductible.
Personal property coverage
“Personal property” is insurance-speak for your personal belongings — like clothes, furniture, electronic devices and appliances that aren’t built in. Most homeowners policies cover these items anywhere in the world, not just inside your house. So if someone steals your bike from outside a store, it’ll likely be covered (minus your deductible).
Which disasters are covered: In most homeowners policies, personal property coverage works differently than dwelling and other structures coverage. Instead of covering your stuff for anything that isn’t specifically excluded, homeowners policies often cover only disasters that are listed.
These disasters, typically called “perils” in your policy, tend to include the following:
• Fire or lightning.
• Windstorms and hail.
• Damage from aircraft.
• Damage caused by vehicles.
• Volcanic eruptions.
• Falling objects.
• Weight of ice, snow and sleet.
• Water overflow or discharge from household systems like plumbing, air conditioning and appliances.
• Freezing of those same household systems.
• Sudden damage from a power surge.
• Sudden tearing, cracking or bulging of a hot water system, steam system, air conditioning or fire protective system.
How it works: A pipe bursts on a frigid winter night, sending water cascading into your kitchen. Although dwelling coverage would pay for damage to built-in items such as cabinets, personal property coverage would take care of damaged furniture, minus your deductible.
Loss of use coverage
Sometimes called “additional living expenses,” the loss of use section of your homeowners policy can come in handy if your home is too damaged to live in. Loss of use coverage may pay for hotel stays, restaurant meals or other expenses associated with living somewhere else if your home is uninhabitable after a disaster your policy covers.
Which disasters are covered: As long as your home is undergoing repairs for a covered claim, you’ll likely be eligible for loss of use coverage. But if your home’s damage is due to a disaster that isn’t covered — such as a flood — your insurer won’t pay your additional living expenses either.
How it works: After a kitchen fire spreads to your living room, your home is out of commission for a few months while contractors make repairs. Your insurance company pays for you and your family to rent a similarly sized house nearby.
Personal liability coverage offers financial assistance if someone sues you for injuring them or damaging their property. Coverage generally extends to anyone in your household, including pets — so if your dog bites someone at the park, you may be covered.
Which disasters are covered: Liability insurance covers bodily injury and property damage to others, with some exceptions. For instance, you won’t be covered for criminal acts or harm you caused on purpose. Nor are you covered for injuries or damage from a car accident (your liability car insurance would pay for those).
How it works: A delivery person slips on your icy sidewalk before you get around to salting it. He breaks his wrist in the fall and sues you for medical bills and lost wages. Your liability coverage could pay your legal fees, plus any damages you’re responsible for in the lawsuit, up to your policy limit.
Medical payments coverage
Like liability coverage, medical payments coverage pays if you cause physical injury to someone outside your household. However, there’s no lawsuit required, and you don’t need to be found at fault in order for medical payments coverage to pay out.
Which disasters are covered: You could tap your medical payments coverage if someone suffers a minor injury on your property, or if you cause harm to someone else outside of your home. Similar restrictions apply to liability and medical payments, with no coverage for intentional acts or car accidents, among other exclusions.
How it works: Your dog bites the hand of a visiting friend. There’s no serious harm, but your medical payments insurance covers the cost of their trip to urgent care for stitches.
What’s not covered by homeowners insurance
Even the broadest homeowners insurance policy won’t cover everything that could possibly go wrong with your home. For example, you can’t intentionally damage your own house, then expect your insurer to pay for it. Policies also typically exclude damage from other causes, such as:
• Flooding, including drain and sewer backup.
• Earthquakes, landslides and sinkholes.
• Infestations by birds, vermin, fungus or mold.
• Wear and tear or neglect.
• Nuclear hazard.
• Government action, including war.
• Power failure.
However, you can buy separate coverage for some of these risks. Flood insurance and earthquake insurance are available separately, and in hurricane-prone states, you may also need or want windstorm insurance.