A homeowners insurance policy is charged with an extremely important task: providing financial protection to make you (the policyholder) whole after an insurable incident that damages your greatest asset—your home. But if you don’t understand what you are getting with the purchase of your homeowners insurance policy, you could be putting your home and financial future at risk.
Dwelling Coverage—a Shared Foundation
The amount of coverage you have for your dwelling covers the actual structure of your home including any built-in appliances, wiring and plumbing. It also covers attached garages that share a foundation with your actual dwelling but does not cover unattached buildings or structures like fences and sheds (these would be covered under Other Structures).
Your dwelling coverage could cover you for either replacement costs or actual cash value. While it may seem that this difference is minor, coverage for replacement costs is actually very different from actual cash value because replacement costs allow your insurer to reimburse you the amount of money you actually need to buy a similar item to replace the one that was lost, damaged or stolen. That means your claim could be equal to the amount needed to rebuild your home or buy one that is similar and in a similar location. Actual cash value, however, gives you the assessed property value regardless of whether or not it is enough to help you replace what you lost.
Personal Property Coverage—the “Things” Inside Your Home
The contents inside your home are covered under the Personal Property/Contents section of your policy. This section covers all your furniture, clothing, electronics, jewelry, free standing appliances and other interior contents. The limit of coverage for your personal property must be reasonable when compared to your dwelling coverage and most insurers impose ratio limits that restrict your personal property coverage from exceeding a certain percentage of your dwelling limits.
Just like your dwelling coverage, your personal property coverage could provide replacement value or actual value which will subtract the lost, stolen or damaged property’s depreciation from the replacement value in order to determine the amount of the claim.
Liability Coverage—Accidental Injury to a Visitor
It’s an unfortunate reality, but sometimes visitors in your home have accidents. They may trip over a loose walkway stone or slip on your deck, but if they are injured and want to have their medical fees reimbursed along with pain and suffering, your liability coverage is there to handle the claim.
Loss of Use Coverage—An Uninhabitable Home
If your home becomes uninhabitable, then you may not be able to live in it until repairs are completed. If the loss is an insurable incident, loss of use coverage in your policy will reimburse you for any living expenses that you incur which are above your normal expenses while your house is uninhabitable.