So let’s say you bought one of the around 5.6 million homes that sold in 2020. You got homeowners insurance because your mortgage lender made it clear that you must have it to get your mortgage.
Now that you’ve settled into your new home and finished up the majority of your renovations, you’ve started thinking about the homeowners insurance policy.
You know it’s there to cover home damage, but you’re a little hazy about what exactly that policy will cover. If you’re in that situation or just wondering what homeowners insurance will normally cover, keep reading. We’ll cover the essentials that most homeowner policies cover.
What Is Homeowners Insurance?
Your basic homeowners insurance policy provides coverage to make repairs to your home or replace your home in the event of covered damage. Most homeowner policies also provide coverage for personal possessions that you may lose as a result of damage to your home.
What Does Homeowners Insurance Cover?
A standard homeowners insurance policy will offer coverage for several broad areas of potential damage.
One of the main areas of coverage is for weather-related damage. Covered types of damage often include wind, lightning, and even hail damage.
Policies will typically cover fire damage, which includes both the damage caused by the fire and smoke damage. You will also get theft, vandalism, and civil unrest coverage. Most policies offer water damage coverage as well.
Want to know more? You can head over here for a deeper dive into types of homeowners insurance coverage.
Common Exclusions
Most homeowners policies will exclude natural disasters such as flooding, tornadoes, earthquakes, and hurricanes. You will typically need an insurance rider or separate policy to cover damage from those kinds of events.
Replacement Cost vs Cash Value
Homeowners policies tend to fall into two main categories: replacement cost and cash value.
With a replacement cost policy, the claim payout will reflect the current cost to replace or repair your home and belongings. With a cash value policy, the payout is based on the actual value of the property. So, you may only get $2000 for a destroyed outbuilding even though it would cost $4000 to replace it.
How Much Homeowners Insurance Do I Need?
You may wonder how much coverage you need and, sadly, there is no fixed answer. As a rule of thumb, your policy should provide enough coverage that you can rebuild your home to the same floorplan, features, and fixtures.
Homeowners Insurance and You
For many people, homeowners insurance is little more than a monthly or yearly bill. You pay it and forget about it until the next time you need to make a payment.
Despite that, it’s important that you understand the type of policy you have and what it covers. You should pay particular attention to the exclusions in the policy. That lets you know what kind of extra coverage you most likely should invest in as part of your insurance coverage.
Looking for more home maintenance and protection tips? Check out the posts in our Home & Garden section.