What Does Homeowners Insurance Cover?
After all the searching and trips to the bank, you are finally ready to move in to your new home. It may seem like the hardest part is over, but now comes the real responsibilities associated with owning a home. Suddenly, every problem becomes your own. If the stove goes out, it’s your problem. The lawn needs to be mowed; it’s your problem. If you have a leak on the roof, that’s your problem, too. Owning a home comes with huge responsibilities, and most of them come attached to a considerable price tag. So what can you do to protect yourself from serious financial setbacks? One of the best ways is to purchase home insurance.
Protecting your home with some form of insurance is a very smart choice. In fact, some mortgage providers insist that you have some type of minimum coverage. Home repairs are very costly. We are not talking about home renovation costs; those are very different. A home renovation is something that you take on by choice to improve either the function or aesthetic appeal of your home. Home insurance is in place to cover unexpected, usually significant damages to the house. For example, perhaps your roof springs a leak, and water is starting to damage your home. This is something that may be covered by insurance. Or maybe you suffered from an unfortunate break-in, and your home was damaged in the process. Homeowners insurance may protect you in that situation as well.
There are many different types of homeowner’s insurance. As well as having many different providers to choose from, each insurance company has a slightly different structure as to what its policies cover. Most have several types of insurance. Each variety of policy covers different issues, some more basic and others more comprehensive. The more extensive the policy, the more coverage you may have. But you can be sure that the more coverage you have, the higher your premium is going to be.
Finding the right policy can and should take some research. Your home is the biggest purchase of your life. This is what you saved for and what you work to pay for. Your insurance policy should cover issues you think you may encounter and is likely going to be different from some of your friends. For example, someone who lives near the water is going to want different insurance from someone who lives deep in the city. The same is true for someone whose water is hooked up to the city sewers versus someone who is hooked up to a septic system. All of these things, plus more, factor into what type of policy you are going to need.
Many insurance companies can help guide you in the right direction. So don’t be afraid to ask a lot of questions at the beginning of the process. It may also be a good idea to shop around a little bit. You are not necessarily looking for the least expensive premium, though. You should be looking for who gives you the best coverage at the best price. It can be very tempting to choose the least expensive option. But if something goes wrong, you may be regretting that decision very quickly. It is usually easier to pay a little bit more each payment than it is to have to pay out thousands of dollars suddenly.
If you are unsure of how to proceed and which policy is best for you, some people can help you out. They are known as insurance brokers. Their job is to help you understand what type of policy you need and how much you can afford to pay. They can take your information and give you the best advice to fit your needs. From there, they even shop around to find the company that suits you best.
Additionally, if you need to make a claim, your broker is the person you call. They then deal with the insurance company on your behalf. This alone can be a selling point for enlisting a broker. Dealing with insurance can be a difficult road to navigate. It can be even more overwhelming when you are already dealing with contractors to fix the problem your home faced.
Each insurance company is going to have a different breakdown of their insurance policies. Each policy has different coverage, so there is no one type of universal insurance. The policies may also change based on where you live. Each state has their own issues that need to be protected against. This is especially true for the weather. For example, people who live in Florida are going to be extremely concerned about dealing with damage from hurricanes. This is not an issue for someone who lives in Ohio. There are a few commonalities that many insurance policies cover. Here, we give you a basic overview of the types of policies you may be able to buy. Keep in mind, this may be different for you, so be sure to ask your provider exactly what you are covered for.
Basic Homeowners Insurance
Many insurance providers offer a basic policy. This is meant to cover only the most common and rudimentary issues your home may face. There are no exceptional circumstances here. In the event you need to make a claim, you are going to be covered for the described items but very rigidly. There is often very little wiggle room when it comes to exercising your insurance policy.
Things that are often covered in a basic policy include fire or smoke damage, explosions, theft, vandalism, hail and windstorms, lightning damage, damage from aircraft, damage from vehicles, riots, and volcanic eruption. Some of these issues may be very locale-specific, as not everyone lives near a volcano. Additionally, they may only be covered in certain circumstances. Sometimes weather issues can be considered an Act of God, and therefore, that damage is not covered, even though you may think it is.
Basic insurance generally does not cover floods or earthquakes. So if you live near a flood plain, this may be a very big issue. The same is true if you live near a fault line or in an area that has seen damage from earthquakes. It is likely that this coverage also does not protect you in the event that someone gets injured on your property. That can be a significant expense and something that takes years to work out. The one other thing you may be covered for is the damage or loss of very specific items in your home. In general, those items need to be listed and detailed at the onset of the policy.
Basic coverage is the least expensive type of insurance. That is for a good reason. You are only covered to the absolute minimum. The initial price tag of this insurance may be very tempting. But remember, cheap things often deliver cheap results.
Additionally, your mortgage provider may state that this coverage is not good enough. They, too, want to protect themselves in case something goes wrong on your property. If you do purchase only basic insurance, be prepared that, if something goes wrong, you may not be covered. However, take some peace in the fact that other options don’t cost that much more. There are many other affordable options out there.
Broad Form Policies
Broad form policies do just as the name suggests; they cover a broader number of issues. This type of policy often covers all of the perils listed in basic coverage, such as fire damage, explosions, theft, etc. However, a policy like this may also cover falling objects, weight from snow or ice, freezing issues for the HVAC system, damage from accidental cracking or burning of pipes, accidental overflow of water or steam, and accidental damage from electrical currents. This policy covers quite a few more issues. The issues listed are actually quite common problems, so it is understandable why this type of policy provides a lot more peace of mind.
Broad policies may also include coverage for items inside your home that are damaged or stolen. Again, these specific items may need to be listed in your policy, but this can vary from provider to provider. A broad policy may also cover some or all of your personal liability should someone get injured in your home or on your property. Those few items alone mark a big difference between a basic and broad policy.
It should be noted that any items not listed in your broad policy are not going to be covered. Even if they seem very similar, they are not covered. This can also be true if an issue that is covered leads to an issue that is not. The issue that is not listed in your policy may not be covered, even though it is a cause and effect scenario. This is another reason why it is so essential to understand what your policy covers and what it doesn’t. Many providers may let you add to your policy, but that does not help you if the issue already took place.
Special Form Policies
Special form policies are probably the most common type of insurance policies for homeowners. Again, they may be called something different at each insurance company, but each company offers something similar. If you find a company that does not provide this type of insurance, they may not be a very good choice. It is your goal to find a company that offers a policy with the vast array of coverage.
These policies are effective because they cover a much more extensive range of issues a homeowner may face. They are more expensive than basic or broad forms, but they still tend to be affordable. This is the ideal situation. You want a policy that doesn’t break your bank but provides you with extensive coverage in the event of an accident or peril.
Special form policies often cover everything discussed in both basic and broad forms. However, they go a step further and cover issues that are not listed in the policies. Instead, they only exclude coverage that is specifically outlined. If you experience a peril that is not listed in the exclusionary category, then you can be pretty sure it is covered. Choosing a special form policy covers you for a much greater array of incidents, many that you may not even know about. That is what makes this a much better policy.
These policies usually include not only your home, but other structures that are attached to the house. These are things like decks, garages, or covered porches. More basic policies often do not cover damage to those areas. Even though you consider them a part of your home, your insurance company may not. This type of policy often includes financial coverage of your personal belongings and your personal liability if someone is injured on your property. It may even cover your personal liability in case you do damage to someone else or their property. For example, if a fire in your home spreads to your neighbors, your insurance may protect you.
Things that are not covered are going to vary by company and by your individual policy. Take the time to discuss everything with your insurance provider. It is better to understand exactly what you are covered for. For example, some policies do not cover damage from a flood. This is the type of flood that is a result of outstanding weather conditions, such as a heavy spring melt or a sudden rise in lakes or rivers. It is very important to understand the language in the policy.
Comprehensive Form Coverage
This is the most expensive type of insurance available. In that, it is also the policy that covers the most number of perils. It is similarly structured to a special form coverage in that it covers the policyholder for everything except items listed on an exclusionary sheet. The difference here is that some of the items listed may be partially covered. It is not exactly clear how much is included because it is likely circumstantial. This may be the case if one of the perils happens unexpectedly. Your insurance provider or insurance broker can generally explain what is and isn’t covered in better detail. The following things are often not covered in a comprehensive policy:
- Water damage
- Earth movement
- Damage from wildlife infestations
- Damage from neglect or general wear-and-tear
- Changes to your home’s foundation from settling or expanding
- Intentional loss
- Damage from war or government action
In comprehensive policies, your personal belongings and personal liability often have better coverage. Usually, the amount of coverage is based on a limit you choose and pay for in the policy. This policy is the most inclusive type of policy you can get.
Just because a person is not a homeowner does not mean they shouldn’t have insurance for their dwelling. A tenant, though not necessarily worried about the structure of the building, still has some personal liabilities and belongings they may want to be covered for.
Interestingly, there are a couple of types of renters insurance policies as well. A more basic policy covers a tenant’s personal liability and their personal belongings should they face a specific peril. These perils are often very similar to those listed in a basic form homeowner’s policy. For more comprehensive coverage, a tenant may choose to purchase a policy that covers them in case their apartment is temporarily uninhabitable. In this case, the coverage can pay for additional living expenses during the time they are unable to live in their apartment.
Condo Form Insurance
More and more people are choosing to live in a condo setting. Condos are an excellent choice for people who prefer to own a piece of real estate but have less responsibility in terms of structural and outdoor maintenance. In a living situation like this, those responsibilities are shared by other condo owners and the condo corporation itself.
Condo insurance covers owners for their personal belongings and personal liability. In this, the interior of the condo is usually covered as well. The inside of the dwelling is what the condo owner owns and is personally responsible for. Typically, the policy covers the walls, floors, and ceilings. All of these are general coverage under the same circumstances that a special form homeowner’s policy covers.
It is important to note that the common elements of the condo are typically covered by the condo corporation’s insurance. This covers areas such as elevators, lobbies, parking lots, pools, or yard space that is deemed a shared space. Often a condo owner has little say on that policy unless they sit on a board that has the authority to make those decisions.
Mobile Home Form Insurance
Many people prefer to live in a mobile home dwelling. People who live in these types of homes can get insurance, though it is not the same as traditional homeowner’s insurance. Instead, it is specially designed for the types of issues that may be faced for mobile or manufactured homes. It is usually very similar to special form insurance but has some notable differences. Each insurance provider has different coverages and policies for mobile homes. It is best to discuss this type of policy directly with your insurer or broker.
Older Home Form Insurance
Older homes face issues unique to their age. They may have different structural issues due to their age or the materials that were used to build the dwelling. Here, coverage is likely very similar to that of a special form policy. Often, some specific changes or modifications are made to suit older houses. Additionally, older homes may be listed as a historic dwelling or registered landmark. This type of policy can usually address issues for those circumstances.
Possible Additional Coverage
The fact that homeowner’s insurance policies have some limitations may be cause for concern. This is understandable. However, just because the peril is not covered in your policy does not mean that you cannot get coverage for it at all. Many insurance providers offer coverage for exclusionary items, but they have to be listed and paid for as additional coverage. This system works because people who do not require extra coverage do not have to pay for it. However, people who do need it can have some peace of mind that coverage is available for them
Flood insurance is an optional coverage that may be good for people who live in areas that are prone to flooding. It is often listed as a separate policy with its own deductible. Depending on where you live, you may be required to purchase this type of policy.
Earthquake insurance is another popular one. It is structured very similarly to flood insurance. This type of insurance may be very wise if you live in areas that are known for earthquakes and the damage they can cause.
Other types of optional insurance coverage may be replacement costs, sewer backups, other structures insurance, personal umbrella liability insurance, medical coverage from property accidents, ordinance insurance, valuables insurance, brand new belongings insurance, and better roof replacement. All of these are unique to each insurance provider and individual insurance policies.
Choosing the Best Insurance for You
There is so much to know about owning a home and then protecting that home. Homeowner’s insurance is an essential tool that can be used to help protect your most significant investment. Insurance can be a complicated road to travel, especially if you have little experience in dealing with an insurance company. Take your time and do your research. Find the policy that works best for you in terms of coverage and budget. You may also want to consider enlisting the help of a professional. An insurance broker is going to be your advocate. They can give you advice and provide some much-needed guidance in the case of a claim. No matter what option you choose, it is always a good idea to have at least the most basic form of homeowner’s insurance. You never know what is going to happen.