If you own a home or are in the process of buying one, homeowners insurance is one of your most essential insurance policies.
If you’re like most Americans your home holds the majority of your wealth.
The need to protect your financial well-being is tied to more than just the economic value of the home. Your home is also contains most of your valuable possessions (personal property) and presents personal liabilities potentially brought on by legal and medical expenses associated with any accident occurring on your property.
Consequently, understanding and securing an appropriate homeowners insurance policy is a cornerstone to your financial security.
How Does Homeowners Insurance Protect You
You might be surprised by what is and isn’t covered in the standard homeowners insurance policy. Typical homeowners insurance cover fire, wind and hail, water damage (often excluding flooding and gradual leaks), and theft.
When reviewing your insurance policy it’s important to understand that most only cover the perils that are clearly spelled out in the policy.
As a general rule of thumb your homeowners insurance policy consists of:
- dwelling and structures coverage, which covers open perils or all risks, which actually means everything except what’s specifically listed in that section. This can be confusing, so read the language carefully
- Personal property coverage, which covers named perils, which means you are covered only for those perils specifically listed
What is Covered in a Basic Home Insurance Policy
Most homeowners insurance policies are built on the standard Insurance Services Office (ISO) HO-3 policy template.
This template names the following perils as covered:
- Fire or lightning
- Windstorm or hail
- Explosion
- Riot or civil commotion
- Aircraft
- Vehicles
- Smoke
- Vandalism
- Theft
- Falling Objects
- Weight of snow, ice, or sleet
- Accidental discharge or overflow of water or steam
- Sudden and accidental tearing apart, cracking, burning or bulging
- Freezing of plumbing
- Sudden and accidental damage from anartificially generated electrical current
- Volcanic eruption
Carefully, review this list and familarize yourself with what is covered in your specific homeowners policy.
What is Not Covered by Most Homeowners Insurance
This next list – perils that are NOT cover – is most likely the most surprising to homeowners. This is why a good insurance policy review is essential to avoid being surprised when you do have a major incident and find yourself with no coverage.
Let’s take a look a common exclusions from standard homeowners insurance policies.
- Earth movement (earthquakes, landslides, mudslides, subsidence, sinkholes, and so on)
- Water damage (when it’s from flooding, surface water, waves, tidal water, a sewer backup, or groundwater seeping up into the home)
- Power failure
- Neglect
- Ordinance of law (meaning the government orders you to tear down, rebuild, or renovate your home to meet local ordinances)
- War
- Nuclear hazard
- Intentional loss
- Governmental action
- Mischievous acts
- Birds, vermin, rodents, or insects
- Animals owned by an insured
- Mold, fungus, or wet rot (unless it’s hidden within the walls or ceilings or beneath floors after an accidental discharge or overflow of water from plumbing or HVAC systems)
Keep in mind that this is just a guide to inform you of what may or may not be covered in your homeowners insurance policy. I encourage you to carefully review your own homeowners insurance policy with a qualified insurance agent to ensure that you have the coverage necessary for your personal situation and risk tolerance.
Photo by Soroush Karimi on Unsplash
