Buying a home is one of life’s biggest steps, and homeowners insurance is a crucial part of protecting that investment. Not only does it safeguard your house and belongings, but it’s also a must-have if you have a mortgage.
What Does a Policy Actually Cover?
Think of your policy as a package with several key protections:
- The House Itself (Dwelling): This is the heart of your policy, covering your home and anything attached to it, like a deck or an HVAC unit.
- Other Buildings (Other Structures): This covers freestanding buildings on your property, like a shed, a detached garage, or your fence.
- Your Stuff (Personal Property): This protects your belongings—from your couch and TV to your clothes and kitchen gadgets. If you have high-value items like expensive jewelry or art, you’ll want to get a separate rider for them.
- When You Can’t Stay Home (Loss of Use): If you’re forced to leave your home after a covered event, this coverage pays for temporary living expenses like a hotel and meals.
- Liability Protection: This is a big one. It helps cover legal costs if someone gets hurt on your property and you are found legally responsible.
- Medical Payments: This covers the medical bills for people who are injured on your property, regardless of who is at fault.
Perils and Policy Types
Not all insurance policies are the same. A “peril” is simply the cause of a loss (like fire or wind). The most popular policy type is called the Special Form because it covers all perils except for those specifically listed as exclusions. The two most common exclusions are floods and earthquakes. For those, you’ll need to purchase separate coverage, such as a flood insurance policy from the National Flood Insurance Program.
Important Things to Watch For
- Coverage Limits: Be aware of the maximum amount your policy will pay out.
- Replacement Cost vs. Actual Cash Value: This is a huge difference! Replacement cost pays to rebuild your home with new materials, while actual cash value deducts for depreciation, which could leave you with a significant gap in funding. Always know which one your policy uses.
- Umbrella Coverage: If you have significant assets to protect, an umbrella policy is a smart idea. It provides extra liability coverage that kicks in after your standard homeowners policy limits have been exhausted.