A Closer Look at What’s Included in Your Homeowners Insurance Policy

What is a homeowners insurance policy?

In general, "homeowners insurance" can include a number of different types of policies including traditional home policies, condo policies, rental policies and dwelling policies. In this article, we'll be focusing specifically on the policy and coverages for a standalone house that you own. While homeowners insurance is required if you have a mortgage, those who own their homes outright should carry coverage, too. 

A home insurance policy provides a financial safety net that can help get you back on your feet if something happens to your home. This may include paying for home repairs, repairing or replacing damaged personal belongings, or covering temporary living expenses if your home becomes unlivable for a period of time.

Let's take a look at the coverage provided by a homeowners policy.

The core components of standard homeowners insurance

A typical homeowners insurance policy is made up of six different types of coverages: 

1. Dwelling coverage

Say a tree falls on your house, damaging your roof and crashing into your living room. This type of incident would fall under dwelling coverage, which covers the main structure of your home and attached structures, such as an attached garage. If the damage is caused by a covered event, dwelling coverage pays for the repairs to clean up and fix the damage. 

2. Other structures

Structures on your property that aren’t attached to your main home – like pergolas, gazebos, detached garages and fences – are covered under the “other structures” section of your policy.

3. Personal property coverage

Personal property coverage pays for items like your furniture, electronics, clothing and collectibles. Generally, a good rule of thumb is to think of personal property as the items you'd take with you if you were to move.

So, if a burglar breaks your glass back door and enters your home to steal your new TV and laptop, your personal property insurance would help replace the stolen items, while replacing the broken door would fall under your dwelling coverage. 

4. Additional living expenses/loss of use

If a serious loss damages your home to the extent that it's not livable, this category of coverage can help. While your home is being repaired or rebuilt, additional living expenses or loss-of-use coverage can reimburse the additional expenses you incur. For example, if a tornado rips off your roof, you might have to move out of your home while your roof is being replaced. You can use additional living expenses coverage to pay for the increased cost of living you'd experience if you need to stay in a hotel and eat meals out for a period of time. 

5. Personal liability coverage

Accidents happen. Personal liability coverage pays when you or a member of your household causes bodily injuries or property damage. This coverage may pay for the damaged property or the other person's injuries. 

For example, say a neighbor stops by your home and your dog unexpectedly bites the visitor. The neighbor is injured and unable to work, so they sue you. If you’re found to be legally responsible and the injured party is awarded damages, your liability coverage would cover the damages, up to the limit of your policy. 

As a part of this coverage, your insurance company will also defend you in court and cover the costs associated with your defense. Many times, however, the insurer will resolve the claim with the injured party without the need for litigation.

6. Medical payments coverage

For minor injuries, such as a guest slipping and falling on your property, medical payments coverage pays for their medical expenses up to your coverage limit, regardless of fault.

Loss settlement

Your policy may include either actual cash value or replacement cost coverage for your home, other structures or personal belongings. Actual cash value pays the depreciated value of your damaged or stolen property, while replacement cost pays to replace your items with new models. 

Important: There are limits on how much your insurer will cover for certain categories of property, such as jewelry, furs or fine art. However, you can purchase an endorsement, which is a policy add-on, to get coverage for the full value of these valuable items.

Common exclusions in home insurance

Home insurance provides essential protection, but a standard policy doesn't cover everything. Your typical policy will have the following exclusions: 

• Damage due to wear and tear: Home insurance isn't intended to replace the normal maintenance involved in owning a home. Damage to your home or property caused by normal wear and tear is not covered. If your appliances reach the end of their lifespans, you're on the hook for the cost of their replacement.
• Some disasters: Some natural disasters, such as floods and earthquakes, aren't covered under a standard policy. Instead, you must buy a separate policy, like flood or earthquake insurance. 
• Water backup and sump pump failures: Unless you purchase a separate endorsement specifically for water backup or sump pump failures, damages related to these issues are often excluded from standard insurance coverage.