Home Insurance Protects More Than Your Home
Despite what the name might imply, home insurance does much more than just cover your home. In fact, any standard policy should cover all of the following:
- Dwelling coverage: This is the “home” in home insurance. Dwelling coverage pays for the damages to your home – including electrical wiring, plumbing, and heating and air conditioning – from any covered cause. The insurance pays for the repair of those damages. But sometimes, the damages are so severe that repair is impossible and you need a total rebuild. It’s important to ensure that you have enough dwelling coverage to cover the cost of any potential rebuild.
- Other structures coverage: This coverage pays for damages to any other structure on your property, such as garages, sheds, fences, etc. The same damage
- Personal property coverage: Reimburses you for personal items in your home damaged or destroyed by any covered cause, such as furniture, clothes, sporting goods, and electronics.
- Loss of use coverage: Loss of use pays your additional housing and living expenses if covered damage forces you to move out of it while it is being repaired or rebuilt.
- Liability insurance: Liability coverage protects your personal assets and covers the cost of your defense costs if you are ever sued for injury or damages to another person or their property, regardless of if the incident occurred on your property. However, like any insurance, there are levels of coverage. Depending on your assets, you may want to add increased limits to your policy.
- Medical payments to others: This coverage is a lesser version of liability coverage for incidents. It pays for the minor medical costs of anyone injured in your home, such as cuts, burns, or simple falls.
You might be underinsured
Most people concerned about the scope of their insurance coverage try to protect themselves against all possibilities by adding extra endorsements to their existing policies. However, even someone who is completely “covered” could still be underinsured. In fact, about half of homeowners are. Most are insured for repairs, but in the event of catastrophic damage, it might be necessary to rebuild.
Rebuilds are a part of your policies dwelling coverage. However, that coverage has limits. When purchasing a home insurance policy, most people chose a coverage limit equal to the cost of their home. This is especially true because most home insurance policies are bought as a requirement for mortgage approval. Most lenders only require the minimum dwelling coverage which is the selling price of the home. Their only concern is recovering their investment in the event of a total loss.
However, there are a number of factors that could make a rebuild more expensive than the original purchase price or tax assessment of your home. For example, the cost of some necessary building materials has increased significantly in recent years. Also, depending on the causing event, specialized workers may be needed for a rebuild in order to prevent further damage to the property. And there is always the possibility that building codes may have changed since your home was built, requiring new, costly features that you didn’t have before. It is very important to make sure that you have enough dwelling coverage to cover the full cost of a rebuild.
Some valuable items need their own endorsements
Your personal property coverage reimburses you for the cost of replacing the valuable items in your home should they become lost or damaged in a covered event. However, that coverage does have a specific dollar limit. What that limit is depends on your policy, but for very valuable, high-priced items (like a very expensive engagement ring), you will need to purchase a special endorsement for their official appraised value in order to ensure that you a fully reimbursed.
Flood damage is not covered by a standard insurance policy
As previously mentioned, water damage caused by sources inside of the home, or on the property, are covered by your home insurance policy. However, weather-related flooding is not. Flood insurance must be purchased through the National Flood Insurance Program.
Home insurance covers damage; home warranties cover mechanical breakdowns
Most wouldn’t expect their home insurance policy to cover the cost of their mini-fridge if it ever stops running, but many mistakenly assume that the large, vital systems are covered, such as heating and air conditioning or water heaters. Unfortunately, that isn’t the case. Home Insurance does not cover mechanical breakdowns. Those systems fall under that umbrella of general maintenance. However, home warranty plans do cover those systems, as well as important appliances. It also covers many of those “routine maintenance” areas that home insurance doesn’t, such as electrical systems, plumbing, garage doors, and even some roof replacement.