Most standard policies include four essential types of coverage:
Coverage for the structure of your home
Your homeowner's policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning, or other disasters listed in your policy. Most policies also cover detached structures such as a garage, tool shed, or gazebo—generally for about 10 percent of the amount of insurance you have on the house's structure. A standard policy will not pay for damage caused by a flood, earthquake, or routine wear and tear. When purchasing coverage for the structure of your home, remember this simple guideline: Purchase enough coverage to rebuild your home, but take into account current material cost and inflation. The cost to rebuild your home will change each year, it's better to have too much than not enough.
Coverage for your personal belongings
Your furniture, clothes, sports equipment, and other personal items are covered if stolen or destroyed by fire, hurricane, or other insured disasters. The coverage is generally 50 to 70 percent of the insurance you have on the structure of the house. The best way to determine if this is enough coverage is to conduct a home inventory. Personal belongings coverage includes items stored off-premises—this means you are covered anywhere in the world. Some companies limit the amount to 10 percent of the amount of insurance you have for your possessions. Some policies will also have coverage for unauthorized use of your credit cards or identity fraud protection. Expensive items like jewelry, furs, art, collectibles, and silverware are covered, but there are usually dollar limits if stolen. To insure these items to their total value, purchase a special personal property endorsement to insure the item for its officially appraised value. Trees, plants, and shrubs are also covered under standard homeowners insurance, with specific dollar limits. Trees and plants are not covered for disease or if they have been poorly maintained.
LIABILITY PROTECTION
Perhaps the least understood aspect of a homeowner's policy and the place many try to cut premium costs. However, it may be the most crucial part of your coverage. Homeowners liability coverage protects you and your family members (living in your home) if someone gets injured on your property. It also covers you against lawsuits for bodily injury or property damage that you or your family members cause to other people outside of your property. In most cases, it pays for damage caused by your pets. The liability portion of your policy pays for both the cost of defending you in court and any court awards—up to the limit stated in your policy documents. No one ever expects to be sued for medical costs, lost wages, or death benefits. Many policies carry as little as $100,000 in coverage. Legal and medical fees can evaporate that amount very quickly. If you have significant assets, consider increasing coverage to at least $500,000 and purchasing an umbrella or excess liability policy, which provides broader coverage and higher liability limits for a minimal additional cost. As an example, a $1,000,000 dollar umbrella policy can provide an additional $1,000,000 of liability coverage, on top of your home and auto liability, for you and each member of your household, for a few hundred dollars a year. Not having the correct level of liability coverage can have a devastating impact on you for the rest of your life. But a few dollars a year may protect a lifetime of hard work.
Coverage for additional living expenses
Additional living expenses (ALE) ALE pays the additional costs of living away from home if you cannot live there due to damage from an insured disaster. It covers hotel bills, restaurant meals, and other costs over and above your usual living expenses incurred while your home is being rebuilt. Keep in mind that the ALE coverage in your homeowner's policy has limits—and some policies include a time limitation. However, these limits are separate from the amount available to rebuild or repair your home. Even if you use up your ALE, your insurance company will still pay the full cost of rebuilding your home up to the policy limit.
Did you know that homeowner liability claims don't have a deductible?
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