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Homeownership might be the American Dream, but so much can \u2014 and often do \u2014 go wrong when you own a home.\u00a0\u00a0<\/p>\n
A tree falls through the roof during a heavy storm, your neighbor\u2019s teen drives their family car through your fence, a burglar steals everything but the kitchen sink while you\u2019re on vacation\u2014what now?\u00a0\u00a0<\/p>\n
That\u2019s where homeowners insurance comes in. It can be the difference between giving you peace of mind in an emergency or having to cough up your entire rainy day fund. Here\u2019s what a typical policy covers, what it doesn\u2019t, and how much it costs.\u00a0<\/p>\n
Homeowners insurance protects you financially if your property or belongings are damaged by certain perils. Insurance policies define \u201cperils\u201d as an event that causes damage to your property or belongings. It is considered a \u201ccovered event\u201d if it\u2019s listed in your policy.\u00a0<\/p>\n After a fire, leak, or other unexpected disaster, filing a claim with your insurance company can help you pay for repairs or to replace your stuff. A homeowners policy will also pay for living expenses if your house becomes temporarily unlivable.\u00a0<\/p>\n But what qualifies for reimbursement depends on the type of coverage you get and how much you have. In general, there are two types of homeowners insurance policies\u2014named perils coverage (HO-2) and open perils coverage (HO-5)\u2014and then there\u2019s a third: a hybrid policy (HO-3).\u00a0<\/p>\n A broad policy (HO-2)<\/strong> covers losses to your home or belongings caused by a list of named perils, including:\u00a0<\/p>\n A special policy (HO-3) <\/strong>covers damage to your personal belongings caused by the named perils. But it broadens the scope for structure damage so that all perils, except any that are specifically excluded in your policy, are covered (more on exclusions later).\u00a0<\/p>\n A comprehensive policy (HO-5)<\/strong> uses open perils coverage for all structures and belongings on your property. This is the most generous form of coverage\u2014and the priciest\u2014but it still has some exclusions.\u00a0<\/p>\n There are different policies for homes that are at least 40 years old or deemed a historic landmark (HO-8), and policies for renters (HO-4) and condo owners (HO-6).\u00a0<\/p>\n Most people who live in single-family homes have an HO-3 policy. It covers damage to the following:\u00a0<\/p>\n An HO-3 also offers loss-of-use coverage, which pays for additional living expenses if you have to move out of your house while repairs are being made due to damage from a covered peril. It provides personal liability and medical payments for injuries sustained by a visitor, too. For instance, if your dog bites a friend at your dinner party, the insurance company may help pay for their doctor bill.\u00a0<\/p>\n Like most other types of insurance, you have to pay your share of the loss for physical and personal property damage before the insurance company steps in. Most deductibles on homeowners policies are relatively low, ranging from $500 to $2,000.\u00a0\u00a0<\/p>\n The home itself is typically insured at the replacement cost value. This is often higher than your purchase price and will likely keep going up over time, says Angi Orbann, a vice president at insurance company Travelers. \u201cYou could have purchased a home for $300,000, but to rebuild it, it could cost $500,000.\u201d\u00a0<\/p>\n She suggests working with an insurance agent annually to review and update your dwelling coverage, which informs other coverage limits in your policy. Personal property coverage is typically 50% of dwelling coverage. For example, if your home is insured for $500,000, your belongings would be covered for $250,000 (limits reset annually).\u00a0\u00a0<\/p>\n You can raise the coverage amount if that\u2019s not enough, but you should expect a higher monthly premium payment. Loss of use and detached buildings are usually each covered at 10% to 20% of dwelling coverage.\u00a0\u00a0<\/p>\n Personal liability coverage has separate limits not related to property coverage, usually between $100,000 and $500,000. Medical payments coverage can be as high as $5,000.\u00a0\u00a0<\/p>\n A homeowners insurance policy isn\u2019t a catch-all for calamity. \u201cLet\u2019s say your roof starts letting in water, but there was no wind or hail event around\u2014that could be excluded, depending on the situation,\u201d Orbann says. \u201cOr if your refrigerator stops keeping things cold, that\u2019s wear and tear.\u201d Pest infestations, such as termites and mice, are commonly excluded perils, as is damage that was intentionally inflicted on the property by the homeowner or their immediate family.\u00a0<\/p>\n And despite much of the U.S. increasingly suffering from seasonal storms and hurricanes, flooding from weather-related events isn\u2019t a covered peril\u2014and neither are earthquakes.<\/p>\n \u201cIf that\u2019s a concern in an area, there are separate policies that can be either endorsed onto the homeowner\u2019s policy or a total separate policy that homeowners should secure for those types of risks,\u201d Orbann says.\u00a0<\/p>\n Some types of personal property are excluded from homeowners policies or have specific limitations, even when damage is caused by a covered peril. For example, jewelry is covered up to your policy limit for perils such as fire or weather-related damage, but theft has lower limits.\u00a0\u00a0<\/p>\n Most insurers will pay only up to $1,500 for stolen jewelry. Similarly, theft of a firearm is usually covered up to $2,500. To get full coverage for these, experts recommend getting a separate personal articles insurance policy. In some cases, you may want to add supplemental insurance for high-value jewelry<\/a> items like an engagement ring<\/a> or luxury watch<\/a>. <\/p>\n If you use your home as your business, your homeowners insurance may not be enough to protect your business assets. In this instance it might be best to consider adding a business insurance policy<\/a>.<\/p>\n Lastly, items that are insured by another policy, such as cars, boats, or motorcycles aren\u2019t covered by a homeowners policy.\u00a0\u00a0<\/p>\n Homeowners insurance isn\u2019t a state mandate in the same way that auto insurance is, but it\u2019s often required by a lender if you have a mortgage, Orbann says. \u201cThat\u2019s basically to make sure that their interests are looked out for in the case of a loss,\u201d she says.\u00a0\u00a0<\/p>\n It\u2019s a smart way for homeowners to protect their finances, too. According to the Insurance Information Institute<\/a> (III), the average homeowners insurance claim is nearly $14,000. The most common claims are for wind and hail damage, averaging about $11,700 per incident. Fire and lightning are the most expensive property damage claims, averaging more than $77,000.\u00a0<\/p>\nWhat is homeowners insurance?\u00a0<\/h2>\n
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What does homeowners insurance cover?\u00a0<\/h2>\n
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What doesn\u2019t homeowners insurance cover?\u00a0<\/h2>\n
Is homeowners insurance required?\u00a0<\/h2>\n
How much does a homeowners policy cost?\u00a0<\/h2>\n