As you shop around for home insurance, you may be surprised by the different quotes you receive. Different insurance companies have set policies for what they will cover and at what cost. If you want to make an informed decision on the best possible company, it helps to know what homeowner’s insurance actually covers and what terms like liability coverage even mean. Keep these key features in mind as you read your potential policies.
Property Damage
Most people associate homeowner’s insurance with property damage. If a tree falls through your roof or a car cashes into your living area, your insurance policy should cover the costs to repair the damage. Even if you live in a new home, you could face costly replacements and repairs if a natural disaster strikes. Keep in mind that your policy will have coverage limits that will restrict how much of the cost the insurer will front.
Be sure to read your property damage policy carefully. Many insurers don’t include flood insurance in their policies, which means you could end up paying more if you are in a flood-prone area. Check out the National Flood Insurance Program for reasonable insurance rates if you are based in the United States.
Liability Coverage
Liability coverage refers to any expenses that come from someone who is injured in your home. For example, if a friend falls down your stairs because the handrail was broken, they could sustain a serious injury that results in steep medical costs. They might want you to cover their bills and other expenses. These costs can add up. Your liability coverage will help. It will account for any medical bills because of accidents in your home.
You might think that a friend or family member wouldn’t ask you to cover their medical bills, but you can’t be certain. This policy takes the burden off of both of you.
Home insurance rates come with different levels of coverage, so check to see how much liability coverage is included in your policies.
Personal Property
Your house is the physical structure, but your home is everything in it. If there is a fire or flood in your area, then you could lose everything you own, from your computer in the home office to personal mementos like family jewelry. Your insurance policy should cover the cost to replace personal property, which applies to everything from your sofa to your kitchen tongs. If you do have to rebuild, you will be able to use this money to replace all of your personal belongings.
Cost to Rebuild
Within your home insurance policy, you may notice a section called the “cost to rebuild” or the replacement cost. This refers to the estimated cost to physically rebuild your house in the event that it is destroyed by a storm, fire, or flood. You may find that this number is lower than you expect. This is because the insurer is only focused on the cost of materials and labor needed to rebuild your structure. They aren’t worried about the land or the current real estate market.
For example, a small house in San Francisco or Seattle might have a similar cost to rebuild as less-expensive parts of the country. The cost to rebuild is also an important part of your taxes. Most property taxes are based on the appraised value of the structure and land, rather than the market costs, especially in areas where there are dramatic real estate fluctuations.
Now that you understand what your home insurance program covers, you can take steps to clearly read your policies. Check to see how much liability coverage your insurer offers. Ask about flood insurance. You can get an idea of how much coverage you have in the event of a natural disaster.
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