Homeowner's Insurance: What it Covers, What it Excludes

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May 20, 2015 | Laura Firszt

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You pay hundreds of dollars for homeowner's insurance. It's required coverage for everyone who takes out a mortgage, yet people seldom go over the fine print of their policy, to find out what is covered, the dollar amount, and any deductibles. Before disaster strikes, why not inform yourself about how, exactly, your homeowner's insurance protects you?

Your Home's Structure

Homeowner's insurance will pay toward the rebuilding of your home if it's damaged or destroyed by certain natural disasters. (These include fire, lightning, hail, hurricanes, and if you live in Florida, "catastrophic ground cover collapse" -- sinkholes, in layperson's terms.) The policy also covers outbuildings such as detached garages or toolsheds.

IMPORTANT: If the unthinkable happens and you need to rebuild, you'll be able to collect only up to the amount of coverage. To illustrate: Say you have insurance for $250,000. The cost of reconstructing your home comes to $400,000. You'll have to pay $150K ($400,000 minus $250,000) out of your own pocket.

Your Personal Possessions

Your personal possessions are included in your homeowner's policy, in case of theft, vandalism, or natural disaster as above.

Coverage on home furnishings, clothing, electronics, and similar usually is equal to 50-70 percent of the insurance on your house. In the previous example, where you have $250,000 worth of insurance, your belongings would be covered for $125,000-175,000.

Landscaping -- trees, shrubs, and bushes on your property -- is covered at the rate of 5 percent of your house insurance.

Valuable belongings like coin or stamp collections, jewelry, or furs are insured, usually with a limit on the dollar amount.

This portion of your policy is not limited to the contents of your home and yard. It provides coverage of your personal items off premises, too … at the office or on vacation, for instance. In addition, it protects you against fraudulent use of your credit cards, normally to a maximum of $500.

Liability

The liability insurance included in your homeowner's policy covers your legal expenses and court awards in case you're sued for bodily injury or property damage. This applies to both you and your family members, on your property or elsewhere. However, there's a limit to the amount, possibly as low as $100,000, and certain types of harm, like dog bites, are excluded. Should you decide you'd like additional protection, you can purchase umbrella liability in increments of a million dollars.

Additional Living Expenses

If an insured disaster makes your home uninhabitable, homeowner's insurance will pay for additional living expenses until the building is repaired. This comprises hotel accommodation, restaurant bills, and related charges, as well as lost rental income if you normally rent out a portion of your home. Once again, the amount of coverage is limited. What's more, a time limit may apply.

What is Not Covered

Don't face the prospect of an unpleasant surprise. Learn about problems that standard homeowner's policies do not insure. In most cases, it's possible to purchase additional coverage to protect against them.

Flooding, tsunamis, and earthquakes are not covered. If you live in a high-risk area, though, you're legally required to obtain flood insurance to be eligible for federal financial assistance on your home purchase. In addition, your mortgage lender may demand that you purchase this insurance even in a moderate-to-low risk region.

Furniture harmed by insurable events may be covered only for its replacement value -- the dollar amount it would cost to replace it with items in similar condition. In other words, if your 10-year-old couch was damaged or stolen, you'd receive enough to purchase another 10-year-old couch, not this year's model. And there is no compensation for everyday wear and tear.

Mold damage and sewage backup are limited or excluded, although these have the potential to do enormous damage to your property.

Termite infestation is not covered by a standard homeowner's policy. This kind of insect problem is, unfortunately, quite common and can be extremely destructive. Depending on which species you have in your home, cost of professional termite extermination or tenting can total over $10,000.

Finally, acts of war including some types of terrorist attacks are excluded from standard coverage.

Laura Firszt writes for networx.com.

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