What Is Covered By Homeowners Insurance?

Many homeowners are still cleaning up the messes left behind by hurricanes, wildfires and other severe weather this past summer. And we’re likely to experience more severe weather in the months to come, resulting in additional damage to homes and properties throughout the U.S.

Homeowners insurance to the rescue? Maybe. But homeowners insurance policies vary, so don’t make any assumptions. Depending on the fine print, your policy may not provide coverage for all the damage your home sustains in a catastrophic event, weather-related or not.

“Each policy (is) a little different,” says Terra Gross, an Illinois-based attorney who helps clients understand their homeowners policies. She emphasizes it’s always wise to ask good questions and read policy documents thoroughly before signing on the dotted line.

Here are some important things to know about homeowners insurance as you shop for a policy, or try to decipher the one you have.

What is Homeowners Insurance?

Homeowners insurance, Gross says, is a package of protection for property and people, tied to a particular residence. It protects you from financial loss if:

• Your home or the belongings in it are damaged by a destructive event, like a fire or windstorm;
• You, a member of your household (including your pets) or an event your home injures a third party who happens to be in your home or on your property.

What Does Homeowners Insurance Cover?

The definition sounds simple enough, but in reality it’s nuanced. Gross suggests learning the things you should expect to see in all standard policies  — and some things that might surprise you.

According to the Insurance Information Institute (III), policies should cover:

• The structures on the property, including the home itself and unattached buildings like garages and sheds.
• Personal belongs in those structures lost to theft or destruction. The destruction must be related to an insured disaster, like a fire.
• Trees, plants and shrubs that are stolen or damaged by fire, lightning, falling aircraft, explosions and vandalism. If you noticed wind and disease aren’t on the list, that isn’t an oversight. Unfortunately, if a diseased tree falls over in a windstorm and damages your roof, there’s no coverage for that.
• Other people. Called liability protection, this part of the policy applies to an occurrence at your home that causes injury to a third party. Things like your dog biting a guest, or a visitor falling down the stairs and breaking their leg. The liability portion of your policy protects you anywhere in the world as well, in case you accidentally injure someone when you are not at home.
• Living expenses if you need to temporarily relocate. If your house is deemed uninhabitable after a catastrophe, your homeowners insurance will cover the cost of a hotel or rental home, depending on how long you need to live elsewhere. Food and other living expenses are sometimes covered as well.

What Additional Coverage is Available?

Unfortunately, though the list of standards sounds comprehensive, the typical policy excludes lots of things people tend to have around the house. These include jewelry, musical instruments, business equipment and watercraft, Gross says.

Does this mean you’re out of luck if someone breaks into your home and steals your grandmother’s wedding ring, or if your wedding ring accidentally gets washed down the drain? Possibly.

The good news is, you can avoid this by adding additional coverage to your policy. Often referred to as a rider, this is sometimes called a floater or even an “add-on.” Essentially, it is an amendment to your policy.

Common rider options include coverage for:

• Personal property, including valuable items like jewelry or fine art;
• Musical instruments;
• Identity theft restoration;
• Sporting equipment;
• Business-related items if you store business equipment or products at your home.

What is NOT Covered by Homeowners Insurance?

While homeowners insurance certainly covers a lot, it doesn’t cover everything. And Gross says you absolutely must understand this before signing up for a policy so there are no surprises.

Earthquakes and floods are never covered in a standard homeowner’s insurance policy. If you live in an earthquake- or flood-prone area, you’ll need to purchase separate earthquake and/or flood insurance policies, Gross says.

Who Needs Homeowners Insurance?

OK, but what if you’re not worried about fires or other calamities? What if you are willing to risk it and go without homeowners insurance? According to the III, only five percent of homeowners file a claim each year.

That’s fine as long as you own your home outright, Gross says. But if you have a mortgage, that probably isn’t an option. “Most of the time it is required by your lender,” Gross says. And if you fail to obtain homeowners insurance, your lender will secure a policy for you, then send you the bill.

Pay special attention, too, if you rent out a room in your home. While your homeowners policy covers the space itself for things like fire, your tenant will need renters insurance for their personal belongings.

How Much Does Homeowners Insurance Cost?

If all of this sounds expensive, well, it can be. But it probably isn’t as expensive as going without and then wishing you hadn’t.

Average costs vary, of course, based on where you live, the value of your home, how your home is constructed, your personal credit history and whether you have a history of claims. According to Insurify Insights, the national average is $1,211 per year. Homeowners insurance is the most expensive in Oklahoma, and the least expensive in Oregon.

Can I Get a Home Warranty Instead of Homeowners Insurance?

Finally, it is important to understand the distinction between a home warranty and homeowners insurance. They are not one and the same. Purchasing a home warranty does not get you off the hook with your lender.

What’s the difference? Instead of protecting you from financial loss due to a catastrophic event as homeowners insurance does, a home warranty pays for service, repair or replacement of certain systems in your home if they fail unexpectedly. Things like appliances, plumbing or electrical.

While sellers often offer warranties as incentives during real estate transactions, they are in no way, shape or form required. They can come in handy, yes. But they don’t protect you from anything, other than paying your plumber’s entire fee out of pocket if and when the pipes burst.

The cost of these warranties vary widely. Some run as little as $225 annual, while others go for $1,700 or more.

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