Unfortunately, accidents on property happen all too often, and obtaining insurance to cover any resulting injuries and damage can be critical. You should make sure that you understand the terms of your homeowner’s insurance policy and that you keep up with premiums so that the policy stays in effect. Also, you will want to know about any exclusions in the policy, which are situations in which the insurer will not provide coverage. You may want to consider whether you should adjust the amount of your deductible, which is the amount that you will need to pay before the insurer starts covering costs. A higher deductible can pay off by lowering premiums and reducing the risk that an insurer will cancel a policy.
There are two main types of homeowners’ insurance: hazard insurance and liability insurance. Hazard insurance applies to damaged or destroyed property, which could include the structure of your home as well as its contents. Liability insurance applies to injuries caused by the homeowner or other people in the household, as well as their pets. These injuries do not need to occur on the homeowner’s property. Car accidents and injuries resulting from intentional misconduct are excluded from coverage.
Damage covered by hazard insurance most often includes fire, smoke, wind, explosions, vandalism, theft, and hail. It covers water damage but does not usually cover floods, hurricanes, and earthquakes. You can purchase separate coverage for those hazards if you live in a high-risk region. Hazard insurance also usually does not cover damage caused by power outages, sewer problems, mudslides, and vermin infestations. Your insurance policy will provide a list of its exclusions, which you should review to determine whether you should buy additional coverage. This decision probably will depend on the probability and severity of the risk.
Levels of Hazard Insurance Coverage
Actual cash value coverage
Replacement cost coverage
Guaranteed replacement coverage
Hazard insurance may provide one of three levels of coverage: actual cash value coverage, replacement cost coverage, or guaranteed replacement coverage. Actual cash value coverage is the least favorable option, and you should strongly consider a different policy if this is the level offered. It provides coverage only for the market value of the house, taking into account depreciation and decay, so it likely will not provide you with as much as you need to rebuild. The most common level of coverage is replacement cost coverage, which is a set amount provided in your policy. This is based on information about the size of the house, its structural elements, its amenities, and other features. If you are persistent and willing to pay more for coverage, you may be able to find guaranteed replacement coverage. This means that the insurer will pay all of your repair costs without any limit.
In addition to the costs of rebuilding or repairing your home, hazard insurance may provide coverage for your living expenses while your home is being rebuilt or repaired. This may reimburse you for your hotel bills and the difference between your food expenses and your normal food expenses. Coverage for living costs may be subject to limits in time and amount. Hazard insurance also may cover the loss of personal property in your home, often known as its “contents.” This can come as actual cash value or replacement cost coverage, similar to coverage for repairs. Some homeowners will want to purchase endorsements or additional policies for items that have an especially high value. These may even apply if you accidentally lose the item, in addition to situations in which it is damaged or destroyed.
This coverage accounts for medical expenses of people who do not live on your property but are injured on your property or by you or another person (or pet) in your household. It also provides liability coverage in a lawsuit brought by someone who suffered injuries or property damage for which you or a household member was responsible. These costs can mount quickly if injuries are serious, so liability insurance can be critical. You may want to purchase additional liability coverage to cover as much as $1 million in damages. This can help you make sure that you are not personally on the hook for a massive judgment, which could result in losing your home, filing for bankruptcy, and other severe consequences.
A homeowner may be held personally liable if someone else is injured on their property or by a member of their household (including a pet). Liability insurance may help cover this cost.