Homeowners Insurance: What You Need to Know

Homeowners insurance is a necessity. Not only is it a good idea because it protects your home and possessions against damage or theft, but also because almost all mortgage companies require borrowers to have insurance.

Whether you’re under contract to buy a home, or you’re reviewing your current policy, it’s important to understand what’s covered—and what is not.

Most standard policies include four essential types of protection:

1. Your home’s structure. In the event of damage due to fire, hurricanes, or other covered disasters, your insurer will pay to repair or even completely rebuild your home. Most policies cover detached structures such as garages or gazebos, generally for about 10% of the coverage on your house. However, damage or destruction from floods, earthquakes, and poor home maintenance is generally not covered.  Flood insurance and earthquake insurance are both separate types of policies, which may be desirable depending on where you live.
2. Your personal belongings. Clothing, furniture, appliances, and most of the other contents of your home are covered if they’re destroyed or stolen. Your personal belongings may also be covered “off-premises” so you could file a claim for lost jewelry no matter where in the world you lost it. However, there may be a limit on the amount your insurer will reimburse you for personal belongings, usually 50%-70% of the insurance you have on the structure of your home.  So if you own high-priced art, antiques, or fine jewelry, you may need a separate policy to insure these items for their fair value.
3. Personal liability. Liability covers you against lawsuits for bodily injury or property damage that you, your family members, and even your pets cause other people. So if your son, or your dog, accidentally injures a neighbor or destroys her property– either at your home or hers – you’re covered.  Liability limits generally start at $100,000, but if you have hazards like a swimming pool or have a high net worth, you may want to consider increasing your liability coverage above the minimum.  If you have significant assets or a high-profile profession and could be a target for frivolous lawsuits, you may need an umbrella or excess liability policy.
4. Loss of use. Your homeowners insurance may cover your living expenses if you must temporarily relocate due to an insured disaster. It covers hotels, meals, and other additional living expenses due to relocation. Loss of use has both financial and time limits. Experts typically suggest that homeowners have about 20% of their dwelling coverage in loss of use.

In addition to understanding the basics, check out our tips on ways to maximize your homeowners benefits.