If you’re ready to buy a home, it’s important to understand the ins and outs of homeowners insurance. While these policies are meant to provide financial protection against damage, theft, and personal injury, there are some nuances to consider. This is especially important if you live in an area prone to natural disasters, like hurricanes, floods, winter storms, and earthquakes. Andrews Federal Credit Union can help you understand what’s covered and what’s not, and when it makes sense to purchase additional insurance coverage in Maryland, Virginia, Washington, D.C., New Jersey, and beyond.
What Does a Typical Homeowner Insurance Policy Cover?
Homeowners insurance generally covers the following three things: damage from many (but not all) natural disasters, theft of your personal belongings, and liability if someone is injured on your property.
Natural Disasters
Most policies cover damage from fires, lightning, tornadoes, snow and ice, and certain water damage. Your policy may also cover damage from explosions, riots, falling objects, smoke, vandalism, vehicles, and electrical currents like downed power lines. Be aware that there are often caveats. While water damage from burst pipes may be covered, damage from floods may not. Read your policy details carefully and remember, the extent of your coverage depends on your state and policy.
Personal Property
Homeowners insurance can help you recoup the cost of personal property that’s damaged or stolen from your home. What’s covered and the amount of coverage will vary, so it’s important to review your policy closely. The value of your property will be paid out to a certain limit, known as your limit of liability. You can often expand this coverage by purchasing riders or endorsements. Note that some policies will assess your property and pay out the current market value, which can be less than the purchase price if depreciation is a factor.
Dwelling & Structural Protection
It’s important to understand the parts of your home that are covered in the event of structural damage. Typically, homeowners' policies cover damage to the foundation, walls, and roof, along with attached structures like garages and decks. This is known as dwelling protection. Your policy will also include structural protection. This may cover other structures on your property, such as detached garages, sheds, and fencing. Bear in mind that the cause of damage will also impact the coverage you receive.
Liability Protection
Your homeowner's policy provides financial protection if your family members or pets injure another person or damage someone else’s property. It also provides coverage if someone gets hurt on your property. If a guest trips and falls on your front steps, for example, liability protection will cover the cost of any medical or legal expenses, up to a certain amount.
What’s Not Covered in a Standard Homeowners Policy?
A good rule of thumb is to assume coverage only extends to the items and scenarios defined in your policy. If something isn’t specifically mentioned, chances are, it’s not covered. You should also be aware of your liability limit, which indicates the maximum coverage you’ll receive. If your limit is $100,000, your policy will pay out $100,000 and you’ll be responsible for any additional costs.
Flood Coverage
Flood coverage can be nuanced. Floods caused by internal problems, like leaking pipes and overflowing toilets, are often covered by your homeowner's policy. Floods caused by external incidents, such as natural disasters, burst dams, seeping groundwater, and sewer backups, generally are not covered. Because 32% of flood claims were filed by people who don’t live in high-risk areas, it’s smart to consider separate flood insurance. Some mortgage lenders may require separate flood insurance.
Earthquake Coverage
This includes any kind of earth movement, such as earthquakes, landslides, mudholes, and sinkholes. It’s wise to consider a separate policy, especially if you live in an area susceptible to damage.
General Liability
Your liability limit caps the amount of money you’ll receive in the event of personal injury or property damage. A personal umbrella policy can supplement your homeowner's insurance by increasing your coverage amount. This is worth considering if your total assets are valued at $1 million or more, or if your property is considered high-risk.
Neglect or Lack of Maintenance
Damage from neglect or lack of maintenance is typically not covered. Mold damage, for instance, might be covered if it’s the result of a burst pipe but may not be covered if it could have been prevented with routine maintenance.
Sewer Backups
Most homeowners policies don’t cover sewer backups, but coverage can often be added as a rider.
Valuables
Your homeowner's policy may not provide enough coverage for high-value items like expensive jewelry and original artwork. You can get these items appraised and either purchase a rider or increase your limit of liability.
Cars
While homeowners insurance covers most of your personal property, your car is not included. You’ll typically need separate auto insurance to provide financial protection if your car is damaged or stolen. However, homeowners insurance may extend coverage to items within your car.
Important Reminders
As with any insurance policy, you’ll have to meet your deductible before homeowners coverage kicks in. This means you’ll pay out of pocket up to a certain amount. Double-check your policy details and choose your liability limit carefully.
Homeowners insurance can be complex, but you don’t have to navigate the process on your own. Andrews Federal Credit Union can help you understand the ins and outs of your policy and determine whether you need additional coverage to protect your home and your family in Maryland, Virginia, Washington, D.C., New Jersey, and beyond. Contact one of our experienced financial advisors to get started.