With a standard homeowners insurance policy, coverage typically provides the repair and replacement of your home and possessions within the home in the event of damage aka "perils."

Choosing the right homeowners insurance can seem daunting. But the key thing to consider when picking the right coverage for your new property is what you need covered, and to what extent. Read on for more on how to determine what you should cover. 

What is homeowners insurance?

Homeowners insurance is a type of property insurance that protects your home and personal belongings from “perils,” including fire, theft, vandalism, and damage caused by natural disasters. Policies can be extended to include outbuildings, play areas, and pools. 

Some policies also include liability coverage, meaning that if someone who doesn’t live in your home gets injured on your property, medical expenses and legal fees are covered.  

What does homeowners insurance cover?

Perils are the particular events or scenarios that your homeowners insurance will cover. The perils that are covered by your policy will vary depending on the breadth of coverage. Common perils include fire, lightning, hail, theft, vandalism, smoke, and falling objects. 

According to the National Association of Insurance Commissioners, homeowners insurance commonly covers:

  • Dwelling: The house itself and any attached structures

  • Other structures: Outbuildings like sheds, fences, and stand-alone garages

  • Personal property: Your belongings 

  • Loss of use: Living expenses if you have to temporarily vacate your home for repair

  • Personal liability: Coverage for financial loss from property damage or personal injury to others while on your property

  • Medical payments: To people injured on the property or by the homeowners’ pets

  • Water backup of sewer: Coverage for water damage losses 

These perils can be broken down into four key coverage areas: interior damage, exterior damage, loss or damage of personal belongings, and injury to others while on your property.

READ: Final Walk-through: What to Know Before You Close on Real Estate

The cost of your homeowners insurance will vary. Generally speaking, the more robust the policy, the more expensive it will be, but you’ll also have greater coverage and protection which could decrease costs long-term. 

Your policy will depend on the age and size of your home, the condition of your roof, and where you live. Do you live in a high-crime area? Is your town prone to natural disasters? Even the distance to the nearest fire department can affect the cost of your insurance. 

Generally speaking, there are three types of coverage options:

  • Actual cash value: Pays to replace your home or personal property at the current value, taking depreciation into consideration

  • Replacement cost: Pays to replace your home or personal property without considering depreciation 

  • Guaranteed or extended replacement cost: Pays whatever it costs to rebuild your home, even if it exceeds your policy limit; personal property is paid at actual cash value

What homeowners insurance doesn’t cover

Depending on your policy, there will be perils not covered by your insurance. These perils typically include:

  • Flooding

  • Earthquakes

  • Damage caused by a lack of maintenance

  • Pests

  • Requirements by ordinance ie – if an outbuilding doesn’t follow code and you have to rebuild or repair it to abide by the rules

  • Valuable belongings, such as jewelry or artwork

Expanded homeowners insurance coverage and endorsements

Homeowners can purchase expanded coverage, called endorsements, extending their protection against perils not covered by their insurance.  

In addition to flood and earthquake insurance policies, other types of endorsements include coverage for equipment breakdown, identity theft, home businesses, sinkholes, wind storms, and homes under construction.

If you’re happy with your current policy but want additional coverage, speak with your insurance provider about what endorsements are available given your needs.

Build your dream home (and insure it) today.

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