Educational Article

Homeowners Insurance Coverage Components

Though you may not have built your home, you do get to help build the homeowners insurance coverage plan that protects it.

Coverage Within Coverage

A homeowners insurance policy is really a package of several different types of coverage, each protecting you from a specific type of loss and, in many cases, each being adjustable. Policies can vary considerably from one provider to the next, but the general protections offered typically include the following four sub-coverages:

Structure coverage

This coverage is typically split into two components: Dwelling coverage that covers damage to your home and any attached structures, and Other Structures coverage that covers damage to other unattached structures on your property.

Check your policy to see what’s NOT covered.

You can often purchase additional coverage for items not included in the base policy.
Floods and earthquakes are generally not covered.
Your mortgage lender will only require coverage up to the amount of your mortgage, but if you ever need to rebuild, it will likely cost more than that. You can choose to increase your coverage for more complete protection.

Key Takeaway: It’s important to make sure your policy accurately reflects the characteristics of your home and that coverage limits are high enough to rebuild your property in case of a total loss.

Liability coverage

This coverage is also typically split into two components: Personal Liability coverage that pays for damages or injury to someone else if you’re found to be responsible, and Medical Payments coverage, which pays for medical expenses for anyone hurt on your property or injured by your pets.

Pays for legal fees and damages if you’re sued.
No deductible applies to this type of coverage, in most cases.
Detailed disclosure requirements vary, but it’s important to notify your homeowners insurance about any dogs that reside in your house to make sure you’re covered in case they bite someone.

Key Takeaway: Significantly more coverage can often be purchased for only slightly more cost, so it’s smart to adjust coverage (and cost) to meet your specific needs.

Personal property coverage

This coverage pays for damages to your personal property. It’s important to understand if your policy provides Actual Cash Value Coverage or Replacement Cost Coverage.

Actual Cash Value Coverage pays what property is worth after being depreciated for age and use
Replacement Cost Coverage pays what it costs to replace an item
Personal Property coverage includes damages to personal property even if it is not in your home at the time of loss
Certain high-value items like jewelry or silverware may require a separate policy

Key Takeaway: Know which coverage you’re buying. Your premium may be lower, but you may get less money with Actual Cash Value coverage making it more challenging to recover from a loss.

Loss of use

This coverage pays expenses associated with living elsewhere while the home is being repaired or rebuilt.

Customize, Customize, Customize

Don’t just assume that what you are sold when you purchase a policy is the right coverage for you. Instead, look at the various components and their associated cost and modify the policy to make it fit your specific situation.