Homeowners insurance: What is covered and what is not

But while homeowner’s insurance offers many valuable protections, it doesn’t cover every contingency. Understanding what basic policies do and don’t cover can prevent unexpected surprises after a disaster.

Here’s what to expect from your insurance.

Homeowners insurance covers your property

A standard homeowner’s insurance plan protects the physical structures on your property against damage from common disasters. Covered structures typically include:

• House
• Garage
• Warehouses and other ancillary works
• fence

Covered disasters include:

For the most part, any damage to structures on your property due to a qualifying disaster will be covered up to the limit of your policy. This includes fixtures, the HVAC system, and the actual structure itself such as walls, floors, foundations, and roofs.

The standard policy also covers personal belongings located inside structures on your property. This includes:

• Interior
• Interior design
• Personal item
• Guest’s personal items

Most policies set maximum coverage limits by category, but up until those limits, everything in your home is covered.

Homeowners Insurance for you

Homeowner’s insurance also covers you and your property even when you’re not at home. This means it will cover the cost of replacing personal belongings stolen from your car or while you are on vacation.

It also covers your liability and claims-related costs in a variety of situations, such as:

• Temporary living expenses if you are forced to leave your home due to a covered disaster
• Medical and legal costs if someone is injured on your property
• Medical expenses if you, a family member, or a pet injures someone other than the property
• Personal liability in the event that you, a family member or a pet cause damage to someone else’s property

Property damage accounts for 98 percent of claims filed each year, with most claims averaging between $13,000 and $17,000 each.

Homeowners insurance plans do not cover all disasters

In May 2020, two dams gave way in Midland County Michigan. Violent floodwaters flooded homes with 4 to 6 feet of water, damaging heirlooms, HVAC systems, walls and floors. Then, hundreds of homeowners were devastated to find out that they wouldn’t receive insurance for rebuilding because flooding was not included in their homeowner’s insurance policy.

Flooding is not the only disaster excluded from standard policies. Other examples of disasters that are not usually covered by insurance include:

• earthquake
• mudslide
• sinkhole
• volcano

Separate policies or provisions are available to provide coverage for these events, and homeowners at risk of such disasters would be wise to purchase additional coverage.

Willful damage and neglect are also not covered

Homeowner’s insurance also doesn’t cover damage you intentionally cause to your home. It also will not cover damages caused by neglect or improper maintenance.

So, for example, if a storm blows off your roof and causes a leak, your insurance will cover it because it was the result of a qualifying disaster. If your roof later leaks because you let debris build up in your gutters or because you didn’t repair it after previous storm damage, your insurance won’t cover it.

Expensive items may not be fully covered

Most insurance plans limit coverage by category. This means they limit chargebacks to a certain amount. Homeowners with multiple properties in the same category or very expensive personal items may find that their policy limit does not cover their losses in the event of theft or disaster. This usually affects:

• Jewelry
• Musical instrument
• weapon
• Art
• collection

To get the best homeowner coverage for their needs, many policyholders need to:

• Have specialty or expensive items appraised
• Record the value of those items
• Purchase separate terms of that value-specific coverage as an add-on to their standard policy

When in doubt, it’s best to document your belongings and their value and compare them with your policy to verify that you have enough coverage.

Deductions

Another important factor in whether homeowner’s insurance will or won’t cover is your deductible. The deductible is the amount you need to pay for damages before your policy takes effect. High deductible plans typically have lower premiums than low deductible plans.

Generally, deductions work on an annual basis. If you’ve put money into anything your insurance will cover this year, those amounts will count toward your deductible. Once you reach your deductible, your coverage will kick in.

So if you paid your deductible for something else, your insurance may cover your entire loss. If you haven’t paid your deductible, you’ll have to pay it yourself before your insurance pays any.

Actual cash value versus replacement cost

Finally, it is important to consider whether you have an actual cash value policy or an alternative cost value policy.

With a real cash value policy, your insurance payout will be based on the value of an item at the time of loss. So, for example, if your couch is brand new and worth $1,000 but has dropped in value to about $600 when it’s destroyed in a house fire, your insurance company will cover it. give you $600 for that chair.

With a replacement cost policy, your insurance company will pay you to replace your lost item with a new item of the same quality. So using the same couch example you would get $1,000 instead of $600.

Replacement cost policies can be understood to cost more than actual value policies because they pay more in the event of a claim. That said, they can be invaluable if you need to rebuild parts of your home after a disaster.

Fortunately, many policies allow landlords to split the difference. For example, they may choose actual cash values ​​for personal belongings but surrogate values ​​for structural components of the home and furnishings. Or they can build pricing “cushions” in their policies to cover unexpected expenses and contingencies.