What Does Homeowners Insurance Cover? A Beginner's Guide

Home insurance is a financial safeguard that provides protection against a wide range of unexpected events. It is a critical component of homeownership that helps cover the costs of repairing a home or replacing personal property after a covered loss. Understanding a standard policy requires a look at its fundamental components, which are designed to address different aspects of a property and a homeowner's liability. A comprehensive policy provides a structured approach to managing risk, protecting a person's most valuable asset.

The specific details of a policy can vary, but a standard homeowners policy typically includes four essential types of coverage. These are protection for the structure of the home, coverage for personal belongings, liability protection, and coverage for additional living expenses. Each of these components serves a distinct purpose, and a buyer should understand them all when they are in the market for a home.

Dwelling coverage is the portion of a homeowners policy that protects a home's physical structure. This includes the house itself and any attached structures, such as a garage, porch, or deck. It is designed to help pay for the cost of rebuilding or repairing the home if it is damaged or destroyed by a covered event, also known as a peril. A policy will explicitly state the covered perils, which often include fire, lightning, windstorms, and hail.

A standard policy typically includes coverage for other structures on the property in addition to the main dwelling. This includes any structures not permanently attached to the home, such as a detached garage, a shed, or a fence. The amount of coverage for these other structures is generally a percentage of the dwelling coverage, often around 10 percent. A standard policy does not pay for damage caused by a flood, an earthquake, or routine wear and tear.

Personal property coverage protects your belongings if they are stolen, damaged, or destroyed by a covered peril. This includes furniture, clothes, sporting goods, electronics, and other items you own. The coverage is generally a percentage of your insurance on the house's structure, ranging from 50 to 70 percent. This protection extends to items stored off-premises, which means your belongings are covered anywhere in the world.

A standard policy may have a specific dollar limit for certain high-value items, such as jewelry, furs, art, and collectibles, if they are stolen. You can purchase a separate personal property endorsement (a “floater”) to insure these expensive items to their full value. Taking an inventory of your possessions, including photos or videos, is recommended to ensure you have a clear record of your belongings if you need to file a claim.

Personal liability coverage provides financial protection against lawsuits for bodily injury or property damage that you or a covered resident of your household causes to other people. This coverage is essential for protecting your assets in case you are found legally responsible for an accident. It pays for the cost of defending you in court and any court awards, up to the limit stated in your policy. The policy's liability portion also pays for damage caused by your pets. For example, if your dog ruins a neighbor's expensive rug, you may be covered.

An additional type of personal liability coverage, known as medical payments to others, is also typically included in a homeowners policy. This coverage pays for the necessary medical expenses for people accidentally injured on your property, regardless of who is at fault. This can be useful for settling small claims without a formal lawsuit. The coverage limits for medical payments are usually lower than personal liability limits, typically starting at $1,000 per person.

Additional living expenses coverage, also known as Loss of Use, pays any additional costs of living away from home if you cannot live there due to damage from a covered disaster. This coverage is designed to help you maintain your normal standard of living while your home is being rebuilt or repaired.

This coverage covers expenses above and beyond your usual living expenses, such as hotel bills, reasonable restaurant meals, and laundry services. It will not, however, pay for all of your living expenses. You will still be responsible for normal costs, such as mortgage payments. The policy may have a dollar or time limit for this coverage. It is crucial to keep all receipts for additional costs to ensure you are reimbursed.

A deductible is the amount you pay out of your pocket for a covered loss before your insurance company begins to pay. It is how risk is shared between you, the policyholder, and your insurer. You choose your deductible when you buy your policy, and the amount directly correlates to your premium.

A higher deductible generally results in a lower long-term premium, while a lower deductible leads to a higher premium. You will pay the deductible each time you file a claim. For example, if you have a $1,000 deductible and a covered loss is approved for $5,000, your insurance company would pay the remaining $4,000. It is essential to choose a deductible you can comfortably afford to pay out of pocket at any time.

A standard homeowners insurance policy does not cover every type of damage. The policy contains specific exclusions that are important to understand. These exclusions typically include damage that is catastrophic or that is considered preventable through routine maintenance.

Standard exclusions include damage from floods, earthquakes, landslides, or mudflows. These perils require separate policies, such as flood insurance through the National Flood Insurance Program (NFIP) or a private insurer, and earthquake insurance. A standard policy excludes damage from neglect, wear and tear, and pest infestations. Damage from a sewer backup or sump pump failure is typically not covered unless you purchase a specific endorsement.

California's unique geography presents specific considerations for homeowners insurance. While a standard policy covers a number of perils, it does not include protection from earthquakes and floods. These are two major risks in the state that require separate policies. This is critical for homeowners, especially in coastal areas like Newport Beach.

Earthquake insurance is a separate policy that covers damage from seismic activity. It is not included in a standard policy. Flood insurance is another separate policy, typically issued through the National Flood Insurance Program (NFIP). This coverage is essential for homes in low-lying or coastal areas, such as those near the harbor or on Balboa Island, where storm surges and high tides can pose a threat. The risk of flooding is real, even if a home is not in a designated flood zone.

An endorsement is an addition to your homeowners insurance policy that changes its terms or adds coverage for a specific risk. These endorsements can be a valuable tool for filling in gaps in a standard policy and providing more comprehensive protection.

You can purchase endorsements for risks such as scheduled personal property endorsements to insure high-value items to their full value. Other endorsements may cover damage from sewer backups, identity fraud protection, or home-based business liability. These additions allow you to customize your policy to your needs and a home's characteristics.

In conclusion, understanding what homeowners insurance covers is crucial for protecting your investment and ensuring peace of mind. From natural disasters to personal liability, having the right coverage can make all the difference. If you're a homeowner or planning to buy a home, it's important to review your policy carefully and ensure it meets your needs. For personalized advice and guidance, reach out to Cassie French to ensure you're fully covered.