Homeowners need to understand their home insurance coverage and how their policy works. See what home insurance covers and weigh other considerations to maximize your coverage.
Homeowners insurance policies include these types of coverage:
Dwelling coverage covers your home’s structure, including the:
You can get coverage for any damage not specifically excluded in the policy.
Personal property coverage is for your personal belongings, such as:
Your policy only covers the perils listed. While these differ with every homeowners insurance policy, the most common are:
Liability coverage covers bodily injury and property damage you do to others accidentally. It will not cover:
Additional living expenses — loss of use coverage — cover the costs you incur from living elsewhere if you can’t live in your home, like hotel stays and restaurant meals. This coverage applies if your home is uninhabitable because it’s excessively damaged or undergoing repairs for a covered claim.
Your policy’s premiums, deductibles and coverage determine how your homeowners insurance can help you if you experience property damage.
Insurance rates are set based on the insurer’s risk — their likelihood to file a claim. Risk is determined by:
Homeowners insurance plans offer various levels of coverage, including actual cash value (ACV) and replacement cost. ACV covers the cost to repair or replace your house or property plus the value of your possessions, considering depreciation. Replacement value covers the ACV of your home and possessions without considering depreciation.
In certain cases, you may need coverage beyond what a standard homeowners insurance policy can provide.
An inflation-buffer policy is the most comprehensive coverage, guaranteeing or extending the replacement cost of your home’s value. The policy pays for repairing or rebuilding your home, even if it’s more than your policy limit. You can get more coverage than you purchased, so you’ll get a cushion if construction prices have increased since you built or purchased your home.
Umbrella insurance is extra liability coverage that provides further security beyond your home insurance policy. If someone sues you for damages exceeding the liability limits of your homeowners insurance, an umbrella insurance policy will help you pay what you owe.
Umbrella insurance can be a strategic option if:
Your home insurance policy will only cover so much damage, making you responsible for the rest.
A deductible is the amount you must pay before your home insurance coverage applies. It can be a flat amount or a percentage of your home’s insured value.
The deductible impacts your policy — the higher the deductible, the lower the annual premium. With a high deductible, you may pay for claims out of pocket if the cost is low, such as for a broken window.
Your policy’s limit is the maximum amount your insurer will pay for a loss. You can set these coverage limits to your needs based on the value of your home and possessions and the amount it would cost to repair or replace them if damaged.
As a homeowner, you’re entitled to gain the most from your insurance policy and have responsibilities to ensure you’re doing your part.
Your homeowners insurance policy defines your entitlement if certain damages or losses happen. Understand your rights to know how your policy can help you repair or replace your belongings or home.
Home maintenance and home insurance are connected. Caring for your property can help prevent damage or loss and decrease the chance of needing to file a claim. If you must file a claim, a maintained property can get a higher payout.
Explore Our Home Maintenance Guide
Homeowners insurance can give you peace of mind in an unexpected event. If you experience a named peril, your insurance can provide the financial help you need to recover.
Read on to Chapter 3 to learn more about the claims process.