Home insurance is designed to cover a homeowner for the costs associated with repairing or replacing their home or belongings. It protects homeowners from losses such as fire, theft, vandalism, and burst pipes. But as a packaged policy, there is much more than homeowners insurance covers.
Here are the six main categories of coverage you can find in a standard homeowners insurance policy.
Dwelling: Coverage A
Dwelling coverage is the part of your homeowners insurance policy that protects the actual structure you call home. If there is a fire, it will repair or rebuild the part of your home destroyed. If there is vandalism, it will do the same. Essentially, dwelling coverage protects any part of your home that is attached to the primary residence structure. This might include awnings, solar panels, and attached carports.
Dwelling coverage is determined by the insurance carrier who uses a proprietary formula that considers the square footage, design of the home, number of stories, and construction materials. The insurance carrier then estimates the cost to rebuild your property from the ground up, which includes clearing the old debris away and reconstructing your home completely.
To get a good estimate of what dwelling coverage should be, consider the average building costs for construction in your area. On average, it costs between $100 to $200 per square foot to build a home in the U.S. Every city or county in the U.S. will have different costs associated with construction and the higher the quality of materials, the higher the cost of construction will be.
It’s important to understand that the value of your dwelling coverage is not the fair market value of your home. This is strictly what it will cost to rebuild the home. Your fair market value could be above or below this value depending on what home prices are in your area.
Other Structures: Coverage B
Just as your primary structure is covered by your homeowners insurance, so are any secondary structures located on your property. These other structures include a variety of things such as:
- Fences and walls
- Detached garages
- Guest units
- Gazebos and detached patios
- Swimming pools
These structures are protected in the same way your home is protected which means if there is a covered peril such as fire, vandalism, or windstorm, you can make a claim to have the structure repaired or rebuilt.
The insurance carrier determines the amount of baseline coverage for other structures as a percentage of your dwelling coverage. This is often 10%. For example, assume you have a dwelling coverage valued at $300,000 with other structures being 10% of that. The amount of your other structures coverage would be $30,000. This is often more than enough to cover most structures on a property, however, if you need to increase this because of specific building properties, your insurance carrier should be able to do that for an additional premium cost.
Personal Belongings: Coverage C
The stuff that you move in and out of your home, all the things that you own, are classified as personal belongings. They are protected by Coverage C from losses such as fire, theft, vandalism, and pipe bursts. Items protected include pretty much anything you have in the house that isn’t attached to it including appliances and furniture.
It’s important to note that while electronics and appliances are protected from covered losses such as fire or theft, they are not covered for malfunction or wear and tear issues.
Personal belongings protection covers your items while they are in the house, when you travel with them, and sometimes (depending on the carrier), when in storage. This means your laptop is covered if it is lost in a home fire or if someone steals it while you’re at a Starbucks.
Insurance carriers often dictate the baseline coverage for personal belongings by taking a percentage of your dwelling coverage – often 50% to 75%. This means if your house has a Coverage A limit of $300,000 with 70% of that calculating the Coverage C, you have $210,000 in coverage for belongings. This is over and above the $300,000 you have for the dwelling – dwelling is just used to calculate it.
While this is often enough to protect homeowners adequately, doing a home inventory is important to know the true value of your stuff if it all was lost in a fire. Things like socks and utensils seem small but add up quickly. If you need more coverage, you can add it.
Most people realize that the default amount is enough for most of their belongings but not enough for high-end art, Persian rugs, jewelry, and collections. These items are usually limited in coverage in your baseline personal belongings coverage. To fully insure them, you need to get appraisals and schedule them with an endorsement or a personal articles policy.
For example, many homeowners policies limit the coverage for jewelry to $1,500 max. This is not enough to cover the cost of a new engagement ring valued at $15,000 that is lost to theft. The endorsement insures the ring specifically for the $15,000 so you don’t need to worry about the homeowners insurance’s maximum coverage per the baseline policy.
Loss of Use: Coverage D
When your home is involved in a claim and the claim is bad enough that you cannot live in your home until the repairs are done, you can make a claim on the loss of use coverage of your policy. Loss of use pays for additional living expenses during claims where the homeowner is unable to properly use his home.
Loss of use may provide coverage for things like:
- Hotels, Airbnbs, rental homes
- Extra transportation costs from temporary residences
- Food and meal expenses such as eating out when the kitchen is not workable
This coverage is often a reimbursed amount based on receipts provided for the added costs. This might be a hotel bill or dining receipts.
Most insurance carriers set the limit on loss of use coverage. This might be:
- A set dollar amount (i.e. $24,000)
- A set duration for the loss (i.e. two years)
Homeowners should understand the limits when purchasing a policy and understand how that might affect them if they are displaced from their home for an extended period of time during a severe loss.
Personal Liability: Coverage E
Personal liability coverage doesn’t have to do with your stuff. It is a coverage that protects you should a third-party such as a neighbor claim you are responsible for their property damage or bodily injuries. It’s best understood by examples:
- Your dog bites someone
- Your tree falls on a neighbor’s car
- Your son breaks someone’s window playing baseball in the street
When you don’t have insurance and someone accuses you of being personally liable, you have to pay for the damage out-of-pocket or fight it in court. In fact, claiming that you don’t have the money isn’t always a valid defense as the other party could lay claim to future wages and savings.
Personal liability coverage pays for these claims. In fact, it will either settle with the other party based on the reasonable cost of the loss or it will fight them in court on your behalf. Court fees could exceed settlement costs in some cases, making this coverage invaluable.
Insurance carriers often have a minimum personal liability coverage amount set in policies. Most frequently this is $100,000 but can be raised to $1 million or more if you feel you need more protection.
Medical Payments: Coverage F
Most homeowners insurance policies will have limited coverage for medical payments. These payments are often made to guests of your home who are injured while there. For example, imagine that Uncle Joe gets choked on a chicken bone at Thanksgiving dinner and an ambulance is called. Medical payments would pay the ambulance and medical fees for Uncle Joe.
Most policies start with a small limit, often $1,000 to $5,000 but homeowners can increase this if necessary.
People often wonder why you need medical payments since most people have health insurance. While medical payments will certainly help those without health insurance, they are necessary for homeowners to not pay costs out of pocket. What happens is when Uncle Joe gets to the hospital, the intake nurse gets the background of the story. In that story, if it is determined that the incident happened on your property, the health insurance will refuse to pay Uncle Joe’s medical expenses until a minimum amount is paid by you or your home insurance.
So to prevent everyone from having to come out-of-pocket for costs, medical payments cover them.
The main coverages of a home insurance policy are found commonly among most carriers. It’s important to review these with any carrier you are shopping with to determine if the coverage is automatic and what you can do to customize your policy with additional protection if needed. Keep in mind that your home insurance policy may offer other automatic coverage such as identity theft protection. Ask your insurance carrier what’s included in its policies.