What is homeowners insurance?
Homeowners insurance is a policy covering your home (the structure) and its contents (personal belongings). It can save you from severe financial loss if your home is damaged or destroyed. It covers your family's possessions and can provide you with compensation for liability claims, medical expenses, and other amounts that result from property damage and personal injury suffered by others. Most lenders require homeowners insurance in order to obtain a mortgage.

• A tornado or storm shattering your home's windows or scattering your roofing shingles across the neighborhood
• A burglar breaking into your home and stealing that figurine you inherited from your grandmother
• Your dog biting a neighbor or delivery person
• Physical therapy costs for a guest injured by a fall in your home
• A successful personal injury lawsuit brought by a neighbor the last time you practiced your chip shot in the backyard
• Damage from a vehicle crashing into your house

Homeowners insurance is also a way for condominium and cooperative unit owners, mobile home owners, and renters to protect their possessions from damage or theft, and to obtain liability coverage for property damage and personal injury suffered by others.

Who is covered?
Homeowners insurance protects more than just the owner of the house, condominium, or other property. Depending on your living situation, the following individuals are covered under your homeowners policy:

• Named insured
  The insurance policy identifies the "Named Insured" (meaning the individual who is primarily insured under the policy), who is usually the same person named on a deed or lease as the owner or tenant, respectively. You, as the named insured, receive the most extensive coverage under your homeowners policy, for you are covered by property insurance on your dwelling and other structures, in addition to personal property and liability insurance. Named insured condominium owners and renters do not receive such extensive coverage because they do not, on an individual basis, own their dwelling or other structures.
• Spouse
  If your spouse resides in your dwelling, then he or she is covered by personal property and liability insurance, even if he/she isn't identified on the Declarations Page as a named insured.
• Residents
  Individuals who reside in your dwelling are covered by personal property and liability insurance if they are your relatives (e.g., your children) or if they are under 21 years of age and in the care of any member of your family.
• Employees
  Housekeepers, au pairs, or gardeners, for example, are covered by personal property insurance.
• Guests and other visitors
  Your guests and other invited visitors can typically be covered by personal property insurance so long as you contact the insurance company or your agent to request coverage.

What is covered?
The property insurance section of your homeowners policy protects more than just your actual home or dwelling. In most cases, your insurance company will reimburse you for damage or theft affecting:

• Your dwelling, any structures attached to the dwelling, and building materials and supplies that are stored near the dwelling and are used to construct, alter, or repair the dwelling or other structures on your property
• Structures on your premises that are not attached to the dwelling, such as a tool shed or detached garage
• Personal property such as the contents of your house like furniture, clothing, and stereo equipment, as well as outdoor items like sporting equipment and gardening tools

Generally, the coverage limit for other structures and personal property coverage is a set percentage of the dwelling coverage amount. If you wish, you can increase a policy's preset coverage amount by endorsement (see below).

Condominium or cooperative unit coverage
If you own a condominium or cooperative unit, your homeowners insurance does not cover you for your entire dwelling space because you do not individually own the structure you live in. Instead, you are covered for your personal property and any portion of the unit you own under the terms of the condominium or cooperative documents. Renters are covered for personal property only because renters do not own any portion of the property.

Specific coverage
In most cases, whether you own or rent a home, the homeowners insurance company will reimburse you for costs, expenses, and other amounts related to:

• Loss of use
  If your dwelling is not fit to live in because of damage covered by the policy, you should receive reimbursement for your family's or household's living expenses while you wait to permanently relocate or wait for the dwelling to be repaired. A set coverage limit is always applied to a policy's standard loss-of-use coverage, but it can be increased by endorsement.
• Liability
  If you or another insured are found responsible for personal injury or property damage suffered by another person, your insurance company will offer a settlement amount owed to that person. This is only true if carelessness or negligence, rather than intentional misconduct, caused the injury or damage. If an injured or damaged person brings a lawsuit, your insurance company should pay to defend you or any other insured named in the lawsuit. For example, you may be found negligent if a meter reader was injured by falling off your tricky cellar stairs because the railing was broken (and you knew about the situation but failed to repair it). You may be found liable for intentional misconduct if you cut down a tree on your neighbor's property to improve your view.
• Medical payments to others
  If a nonresident requires medical assistance as a result of an injury suffered on or near your premises, your insurance company should pay his or her medical expenses. Injuries that take place away from your premises are also covered, as long as you, another insured, a household employee, or your pet caused the injury.

Open perils vs named perils
Your policy can also cover either open perils or named perils. A named perils policy specifies which perils are covered as well as which perils are not. Rather than covering a number of listed or named perils, an open perils policy covers you broadly against risk of direct loss to your dwelling and other structures, and also includes an extensive list of perils which are not covered.

What is not covered?
There is a wide variety of damages, conditions, and costs that are not covered by homeowners insurance. Your insurance policy describes a number of situations that are specifically excepted or excluded from coverage (called exclusions). Some policies contain more exclusions than others. Your policy also describes certain conditions you must meet, and duties you must perform, in order for you to be covered. Terms and limitations that were originally included in your policy can be changed by a document called an "endorsement." For these reasons, you should carefully read your homeowners policy to learn the limitations and exclusions that apply to your specific situation. Here are just a few examples of situations when you may not be covered by a standard homeowners insurance policy:

• Land
  Although the structures and possessions that lie upon a parcel of land are usually covered by a homeowners policy, the land itself is not. This means, for example, you're not covered by your policy if your neighbor's pool overflows and contaminates your untilled garden.
• Coverage Limitations
  The Declarations Page of your policy recites maximum coverage amounts that limit what the insurance company must pay. Separate limits are set for the dwelling, other structures, personal property, loss of use, personal liability, and medical payments to others. This means that even if you suffer a loss to your personal property in the amount of, let's say, $50,000, the insurance company will pay you no more than the policy's stated limitation recited on the Declarations Page.  If this figure within your policy is $100,000 then you're covered for all of it.  On the other hand, if it's only $30,000 then you'll have a $20,000 deficit.
• Flooding
  Your homeowners policy will not cover you for damage that results from floods, waves, sewer overflows, or water seeping into your basement.
• Business
  If you're involved in a business activity, your homeowners policy will not cover you for liability or medical payments due other persons, even if the damage or injury occurred in your home. Other structures located on your premises that are used for business purposes are also not covered by the policy. This means your standard homeowners policy will not reimburse you for medical care required by a client who slips and falls  in your home office as he's putting his coat on the rack.
• Your tenants
  Your standard homeowners policy will not cover you for damages or injuries suffered by the tenants who rent any part of your home.
• Other insurance
  If an injury or damage is covered by other insurance in addition to your homeowners policy, your homeowners insurance company will only pay its proportionate share of the amount due.
• Theft by another insured
  Your homeowners insurance will not cover you for a loss caused by a theft committed by another insured person under the policy. This means your policy will not cover you if your nephew (who lives with you) steals a valuable baseball card from the family room.
• One or two family dwellings
  Structures that have more than two family dwelling units cannot be covered by homeowners insurance
• Cars
  Registered motor vehicles are specifically excluded from personal property coverage. Only vehicles like motorized wheelchairs and lawn mowers, which are not usually registered with the state, are covered by personal property insurance. Your car is also not covered under the "Personal Liability and Medical Payments to Others" sections of your homeowners policy because insurance companies prefer you to insure vehicles with an automobile insurance policy.

How much coverage is needed?
Your home can be insured for either:

• Replacement Cost--pays you the cost of replacing damaged property, with no deduction for depreciation, but with a maximum dollar amount
• Guaranteed Replacement Cost--pays the full cost of replacing damaged property, with no deduction for depreciation and no dollar limit. This coverage is not available in all states. Some insurance companies may limit coverage to 120 percent of the cost of rebuilding your home.
• Actual Cash Value--pays you an amount equal to the replacement value of damaged property minus a depreciation allowance.

Unless a policy specifically states that property is covered for its replacement value, coverage is for actual cash value.

It is important that your policy should cover 100% of the replacement cost of your home. That way, the insurance company will pay you the full replacement cost for any damage up to the coverage limit. If you fear inflation will decrease the value of your policy, an inflation guard endorsement, which is built-in to many homeowners policies these days, ensures that your coverage amount increases a bit every year to keep up with inflation.  What this means, for example, is if your house increases in value next year by 5% your policy's replacement limit will also increase, according to some predetermined index of local home values.

Additions to your home
If you add improvements to your home, you should increase your coverage. Don't wait until the addition is completed to increase your coverage, contact your insurance agent or representative shortly before or after construction begins. Otherwise, if the new addition is damaged or destroyed before you have increased your coverage, you may be responsible for the cost of repairing or rebuilding the addition.

Also, make sure that contractors and subcontractors working on your addition have workers compensation by requesting copies of their insurance certificates. If the coverage is insufficient you may need to extend the liability limits portion of your homeowners policy, or simply find a company whose insurance meets your requirements. The reason for this is relatively simple to understand... Workers injured while working on your addition could sue you if the contractor doesn't have the proper insurance coverage.

Learn More...

Overview | Understanding The Basics | Types Of Insurance | Coverage Amounts
Choosing A Policy | Filing A Claim | Other Types Of Insurance | Home Safety Tips
Planning Concerns | Home Glossary

Please Note: The information contained in this Web site is provided solely as a source of general  information and resource.  It is a not a statement of contract and coverage may not apply in all areas or circumstances.  For a complete description of coverages, always read the insurance policy, including all endorsements.