homeowners insurance protects you financially against disasters, theft, and accidents that cause damage to your home. Most standard policies include four types of coverage that are important: coverage for your home’s structure; coverage for your personal belongings; protection against liability; and coverage for extra living costs.
Coverage for your home’s structure
Your homeowner’s insurance will pay to fix or rebuild your home if it is damaged or destroyed by a fire, hurricane, hail, lightning, or one of the other disasters listed in your policy. Most policies cover detached structures such as a garage, tool shed, or gazebo for about 10% of the amount of insurance you have on the house.
A standard policy won’t cover damage from a flood, an earthquake, or normal wear and tear.
Remember this simple rule when you buy insurance for your home’s structure: Buy enough insurance so that you can rebuild your home.
Coverage for your personal belongings
Your furniture, clothes, sports gear, and other personal items are covered if they are stolen or destroyed by a fire, hurricane, or another insured disaster. The coverage is usually between 50 and 70 percent of the insurance you have on the house itself.
A home inventory is the best way to find out if this is enough coverage.
Personal property coverage includes things that are stored away from your home. This means that you are covered no matter where you are in the world. Some companies limit the amount to 10% of the amount insured for your property. You are also covered for up to $500 if someone else uses your credit card without your permission.
Jewelry, furs, art, collectibles, and silverware that are expensive and get stolen are usually covered, but there are usually dollar limits. Buy a special personal property endorsement or floater and insure each item for its official appraised value to cover its full value.
Standard homeowners’ insurance also covers trees, plants, and shrubs, usually for about $500 per item. Trees and plants are not covered if they get sick or haven’t been cared for well.
Liability protects you from lawsuits if you or a family member hurts someone or damages their property and they sue you. It also covers any damage they cause to your pet. So, you are covered if your son, daughter, or even your dog accidentally damages a neighbor’s expensive rug. (If they ruin your rug, though, you’re out of luck.)
The liability part of your policy pays for both the cost of defending you in court and any court awards, up to the limit set out in your policy documents.
Most liability limits start at about $100,000, but it’s a good idea to talk to your insurance agent about whether you should buy a higher level of protection. If you have a lot of assets and want more protection than your homeowner’s policy gives you, you might want to buy an umbrella or excess liability policy, which gives you both more protection and higher liability limits.
Your policy also includes no-fault medical coverage, so if a friend or neighbor gets hurt in your home, he or she can just send the medical bills to your insurance company. So, bills can be paid without you having to worry about a liability claim. It does not, however, pay for your own family’s or your pet’s medical bills.
More money to spend on living (ALE)
ALE pays for the extra cost of living somewhere else if you can’t live in your home because of damage from an insured disaster. It pays for things like hotel bills, restaurant meals, and other extra costs you have to pay while your home is being rebuilt.
Keep in mind that the ALE coverage in your homeowner’s policy has limits, and some policies also have a time limit. But these limits are not the same as the amount you can use to rebuild or fix your house. Even if you use up your ALE, your insurance company will still cover the full cost of rebuilding your home up to the policy limit.
If you rent out part of your home, ALE will also pay you the rent that you would have gotten from your tenant if your home hadn’t been destroyed.