What Does Homeowners Insurance Cover?

Standard Homeowners Insurance Coverage

A standard homeowners insurance policy provides coverage to repair or replace your home and its contents in the event of damage from fire, smoke, theft or vandalism, a falling tree, or damage caused by a weather event such as lightning, wind, or hail. In addition, you’re typically covered for living expenses if you need to find alternate lodging while your home is rebuilt. Most standard policies also cover heating and cooling systems, along with kitchen appliances, furniture, clothing and other possessions, as well as medical expenses and legal fees if people other than you, your family, or anyone else not living in your home are injured on your property.

Most standard policies include coverage for outbuildings on your property, such as a garage, barn, or shed, along with outdoor grills or fireplaces, swingsets, walls or fences. A swimming pool or other recreational equipment may also be included, but higher risk items such as these may require additional liability coverage.

It’s important to understand the details of your policy, and how much coverage you can expect in the event of a claim. Some lenders only require sufficient homeowners insurance coverage to pay off your mortgage, but in most cases that will not be nearly enough to rebuild your home and replace everything in it.

It’s also important to consider other things that may increase rebuilding costs, such as improvements or additions to your home, a fireplace or sauna, increased labor or material costs, and changes to zoning requirements that might require additional upgrades.

For all these reasons, you may want to consider a replacement cost homeowners insurance policy rather than an actual cash value policy. The former provides coverage to make repairs or replace your home and its contents at current costs, whereas a cash value policy factors in depreciation due to age, wear and tear, and other factors.

As an example, let’s say a falling tree damages your roof, which was last replaced 10 years ago. A replacement cost policy will pay to replace the roof at today’s cost for labor and materials, where an actual cash value policy will deduct 10years of depreciation. The same logic applies to your furnace, washing machine, and other possessions. Replacement cost is more expensive, but industry experts say it is worth the added cost.

“Know the difference between an actual cash value policy and a replacement cost policy,” says Lynne McChristian of the Insurance Information Institute (III), “The former pays the depreciated cost, so you get less at claim time. With replacement cost, you may pay 10 to15% more for coverage, yet you get much more when you file a claim.”

To estimate how much homeowners insurance coverage you need, multiply the square footage of the home by the local building costs per square foot in your area. For example, if your home is 2,200 square feet and local building costs average $80 per square foot, the cost to rebuild your home would be about $176,000. A local insurance agent should be able to help determine costs in your area. You’ll calculate costs the same way for any outbuildings.

Next, take an inventory of all your possessions with an estimated value. Going room to room with a video camera can speed up the process, and provide a visual record. Make a note of where and when you purchased things on your inventory, especially big ticket items. This will not only provide a record, but it will also help determine how much coverage you need and what items might require additional coverage.

According to the III, most homeowners insurance policies typically cover your belongings at a rate of about 50 to 70%of what your home is insured for. Meaning that if your home is insured for $400,000, you can expect to be reimbursed for somewhere around $200,000 to $280,000 for your furniture, clothing, and other possessions. If your inventory determines that isn’t sufficient for your needs, consider additional coverage.

Common Questions to ask before you decide on your Insurance company...

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