Homeowners insurance is a package policy combining coverage for the dwelling, detached structures, personal belongings, additional living expense, and personal liability protection. An insurance policy is a legal contract that defines terms, describes what is and is not covered, outlines policyholder rights and responsibilities following a loss, and more. Homeowners insurance is not required by law, but lenders insist on it.
Insurers offer different kinds of policies, with the HO-3 most popular among home owners. The HO-3 is an all-risk policy covering sudden and unexpected dwelling loss like fire, lightning, vandalism and more. The contract also identifies situations not covered such as earthquake, flood, sewer back-up, mold and home business injuries. Exclusions are losses that present more risk than the insurer is willing to accept.
An overview of coverage provided by homeowners insurance follows.
- Dwelling and Detached Structures. This section insures the house, shed, garage or fence. Traditional HO-3 policies provide dwelling replacement cost coverage, which means partial losses are settled according to how much it takes to repair or replace damages.
- Contents. This section covers personal belongings. The insurance limit on contents can range from 50 to 70-percent of the dwelling limit depending on the insurer. An HO-3 policy covers personal property for specific losses like theft, vandalism, fire and more. Homeowners insurance contracts include restrictions limiting loss settlement on business equipment, computers, theft of high value jewelry and more. Depreciation affects contents claim settlements.
- Additional Living Expense. This is an important coverage if your house is uninhabitable following a covered loss. It pays extra costs associated with hotels, meals, transportation and more if you need to relocate while the house is repaired.
- Liability. This section is split into personal liability and medical payments. Liability pays if the policyholder, a resident family member or even a pet is legally responsible for another person's injury or property damage. It also pays for a legal defense if necessary. Medical payments covers medical expenses if someone is accidentally injured on your property or injured by you, a resident family member or pet. Fault is not a factor.