People planning to buy a home spend weeks or even months choosing the perfect neighborhood, floor plan, and then home before even considering the purchase. Similarly, buyers will shop around and compare the interest rates offered on mortgages. Yet, when it comes to home insurance, the norm is to always defer decision-making to the agent. But just as you don't plan to buy your home without first researching and planning, home insurance buyers should also consider the main options available when it comes to buying a homeowner's policy.
In its simplest form, homeowners insurance is an agreement between you, the homeowner, and an insurance company, that in exchange for making monthly payments to you, they will compensate you for any major damage to your home. At least that was the form of the owner's original policies. Today's policies are more complex, both covering and excluding a wide range of situations.
Broadly speaking, a homeowner's policy covers four major areas of responsibility. These include:
1. Covering the structure of the house
2. Home contents coverage
3. Liability Protection
4. Temporary Disaster Displacement Costs
Structure cover
This structural protection is what most people commonly conceive of when they think of home insurance. Buying a home is a major investment in the lives of most individuals and therefore the threat of losing that property would be so financially devastating that it motivates individuals to seek insurance as a way to protect their financial interest. But despite common perceptions to the contrary, home insurance does not cover all damage to the home. Although each policy varies slightly, floods and earthquakes most often are excluded from coverage. This means that if you have a standard policy and your house floods, you will not be compensated by your insurance company for your loss. On the other hand, other disasters such as hurricane, fire, and hail are usually covered under the standard policy. Additionally, most standard policies cover other structures fixed or attached to the home, most often garages or porches. While these general guidelines are true for most policies, the variance between insurers is significant enough that you study the specifics of what is covered, and more importantly what is excluded regarding coverage of the structure of the House.
Personal Effects Coverage
Homeowners insurance policies not only cover the structure of a home, but much of its contents as well. Since coverage for household items is not complete, however, it is important to know the limits of your policy. The industry standard is between 50 and 70% of the value of the policy.In other words, if you have the structure of your house insured for $100,000, this policy generally covers the value of your belongings up to $50,000 or $70,000 if they are stolen or damaged in non-excluded circumstances. But, just like with home structure, this coverage isn't all-inclusive. For example, there is usually a limit on how much your insurer will pay on high dollar items such as jewelry or expensive clothing. This limit can vary, but generally maxes out at $2,000. An often overlooked possession related to the home, is landscaping. Under most standard policies, insurance that will reward the insured for up to $500 in landscaping damage is also covered. But once again a payout can only be achieved if the causative factor (i.e. fire) was covered in the first place.
Liability Protection
Moving further away from the more common conceptions of a homeowner's policy, it is important to note that policies also cover personal liability for you, your family members and pets. This means that, due to owning the owners policy, you are covered in case, for example, your dog tears up your neighbour's lawn, or much worse, if your neighbor harms himself during your visit. Even more so in this aspect of the policy than any other, the exceptions are vitally important to understand. The amount of liability coverage that comes with a basic policy is a rather standard $100,000. But depending on the exclusions, that similar number belies a world of difference when it comes to personal protection.
Temporary displacement compensation
If an accident happens to your home and you cannot temporarily live in your home, your homeowners insurer will cover the costs of your accommodation and some additional costs during the interval. Included in this cover, for most standard policies, are things like food and other basic living expenses. But some policies go further by compensating you for slightly more extravagant costs like clothing purchases. Travel cost coverage varies here more than anywhere else. Some companies use a percentage calculation to determine the amount of temporary travel compensation you can receive to cover hotel bills, food, etc. This number is usually set at 20% of the value of the insurance on the structure of the house. Other companies, however, take a different approach. They offer unlimited temporary travel compensation, or at least higher, however, these benefits are time dependent. This means that once your coverage time expires, you no longer receive any benefits, regardless of any costs you may still incur.
In all of these categories, insurers offer a wide variety of options depending on your willingness to pay. For example, you can improve your protection for high dollar assets if you have a lot of jewelry. Similarly, if you're particularly concerned about liability, you can pay extra for higher coverage and the same goes for temporary displacement coverage. Although what I've described here provides you with a basic framework for understanding the different components of home insurance and general industry standards, the differences between individual policies can vary widely. Therefore, it is important for those considering the purchase of home insurance that researching details of what has been covered here is a priority. Only by understanding the exact offerings of competitors' policies and understanding their features can the customer find the policy that best suits you and your family's needs.
