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The Basics of Homeowners Insurance

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Table of Contents

Your home is a shelter for your family and your biggest asset. You take many steps to ensure your home stays in top shape and maintains its value. Maintaining your home with routine repairs, making occasional upgrades, and keeping your home well-maintained are just a few of the ways you take care of your home. However, these chores don’t address the damages that could occur in the event of a disaster. Homeowners insurance is a form of protection that will help you avoid financial distress if your home is damaged or destroyed in a covered event.

However, it’s important to remember that homeowners insurance is more than a requirement enforced by your mortgage lender. Having the right home insurance can mean replacing your home and possessions in the event of damage or theft. This guide will help you understand the basics of homeowners insurance so you can avoid gaps in coverage.

What is Homeowners Insurance?

Home insurance protects your home and belongings in the event of most types of damage or theft. It also covers legal responsibility for any injuries and property damage policyholders or others living in the home cause to other people. Home insurance covers damage from most types of disasters and incidents like vandalism and theft. However, there are exceptions, including flooding, earthquakes, and poor maintenance. Homeowners can purchase additional policies to cover these incidents.

Like auto insurance, homeowners insurance is subject to a deductible before claims are paid. The amount your homeowners insurance pays on a claim will depend on the type of policy you have and your chosen amount of coverage.

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What a Homeowners Policy Covers

Homeowners insurance covers your home, possessions, other structures on your property, and certain circumstances related to your home. While you can customize home insurance policies, you can expect most policies to cover these items.

The Structure of Your Home

Referred to as dwelling coverage, this part of a home insurance policy pays to repair or rebuild a home that’s been damaged by a covered event. Dwelling coverage pays out if the interior or exterior of your home is damaged. It also covers structures attached to the home, like a porch.

Personal Possessions

Your home insurance policy does more than cover the building you live in. It provides coverage for your furniture, clothing, electronics, appliances, and other possessions in your home. Most policies provide coverage for 50% to 70% of the amount of insurance on the structure of the home for damaged or stolen possessions. Homeowners can also invest in off-premise coverage, which will provide insurance for possessions even when they are not on the property.

Other Structures

Most home insurance policies pay for damages to additional structures on your property. This may include a storage shed, gazebo, fence, or other structures surrounding your home. Coverage for other structures is usually 10% of dwelling coverage.

Injuries or Property Damage

If someone gets injured on your property, you could be held liable for medical bills or other damages. Liability coverage protects you from financial distress due to lawsuits filed by others. If someone falls on your property and requires medical care or your dog bites your neighbor, your liability protection will pay for the cost of defending you in court and any court awards up to the policy’s limit.

Extra Living Expenses

In some cases, damage to your home can make it uninhabitable. The costs of living away from home can add up quickly. Extra living coverage pays for hotel bills, restaurant bills, and other expenses related to living somewhere else while your home undergoes repairs or rebuilding.

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Different Types of Homeowners Coverage

There are a variety of homeowners insurance policies available. The type you choose will have an impact on the amount of coverage you have. An HO-3 policy is the most common choice for Massachusetts homeowners. This policy covers your home and additional surrounding structures. The amount you receive when you file a claim will depend on your deductible and your chosen policy limit.

Beyond choosing what home insurance policy best suits your needs, you’ll need to consider reimbursement types. The two most common levels of coverage are cash value and replacement cost. Which type you choose will have an impact on the amount you receive when you file a claim.

Cash Value

A policy that reimburses the homeowner, the cash value of their home, and possessions provides coverage for how much the items are currently worth. It’s important to note that this value doesn’t consider how much you paid for your home or expensive possessions like electronics and appliances. Instead, it reimburses you for how much the items are currently worth (after deducting depreciation). While this type of coverage is likely to offer lower premiums, it’s unlikely to provide enough for you to repair or replace your home or replace your possessions in the event of a loss.

Replacement Cost

Most homeowners choose a policy that provides replacement cost reimbursement. Most HO-3 policies are based on replacement costs. This means reimbursement for a claim is based on the current cost of repairs and replacement instead of the cost you originally paid. Since replacement costs are based on current rates, you’re more likely to be able to rebuild your home and replace your possessions up to the limits of your policy.

Homeowners insurance features a layer of protection that helps you avoid financial distress in the event your home becomes damaged or destroyed. To make sure you have the right level of coverage for your Massachusetts home, it’s important to talk to your independent insurance about your lifestyle, family members, home, and possessions.

Homeowners insurance policies have coverage limits and specific exclusions. However, additional riders are available to offer practically infinite customization levels that help you avoid coverage gaps. To learn more, get in touch with the independent agents at LoPriore Insurance Agency today.

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