Home insurance is exactly what it sounds like: insurance coverage for the structure of a house and its contents. Not all insurance plans will protect against the same causes of damage, but many will come in a package deal with multiple points of coverage.
While homeowners aren't required to have insurance in order to own a home (unlike with automobiles), all homeowners should have some form of insurance covering their six- or seven-figure investment.
Damage to the House Structure
Policies that protect the home itself will afford the repair costs in the event that any disasters listed on the policy should result in damage to its structure. This includes tornadoes, hurricanes, lightning, hail, fire and so on. However, flood and earthquake protection are usually not standard on these policies.
Damage to Personal Possessions
Anything inside the home that sustains damage as a result of an insured catastrophe can be covered by a homeowner's policy. The protection usually provides for 50 percent to 70 percent of the coverage on the structure, which is often more than enough to cover an entire household's collection of belongings. In addition, possessions that are stored outside of the point of residence can also be covered no matter where they are in the world.
Homeowner's insurance doesn't just cover the damages that are caused to the owner's property — it also covers any harm that the owner causes to others and their property as well, much like auto insurance. This damage can be caused by any means, whether it's children, pets or the owner him- or herself. This coverage will also provide for a court defense and no-fault medical charges for friends or family who are injured in the home. The starting figure for liability coverage is typically around $100,000.
Additional Living Expenses (ALE)
If a disaster or other listed cause of damage should render the house or its contents unsuitable for habitation, homeowner's insurance can provide for the costs of traveling, staying in a hotel and eating out. ALE normally runs for a limited time, but it's traditionally kept in line with however long it takes for the insurance company to rectify the situation. It can also cover the rent that any tenants would have paid had the unit not been damaged or destroyed.
Most coverage options will try to push everything into a single package, but depending on the insurer, there may be options to handpick which specific coverage policies the owner can pay for. As with all forms of insurance, it's essential that the homeowner weigh out the best value by researching their options before committing to one.
Homeowner's Insurance and Neglect
There are exceptions and restrictions when it comes to each type of insurance coverage. In many cases, the limitations can be expanded upon by paying a premium. However, not all insurance companies are created equal, and only specific ones may provide the right amount of coverage in the ways that one would expect their home to be damaged. For instance, most homeowner's insurance policies won't cover neglect to one's own home, which can include:
- Poor maintenance
- Owner's pet-related damage
- Owner's child-related damage
- Failure to notify the insurance company in time after damage has been caused
This means that if the homeowner's child spills juice on an expensive area rug, or the pet leaves a gift that seeps into the $5,000 microfiber couch, these won't be covered. It also means that if the roof shingles weren't replaced past their expiration date and water damage were to result from that, the onus is on the homeowner.
- Iii.org - This article will help readers understand what's covered by home insurance.
- Investopedia.com - Investopedia has an excellent resource covering the basics about homeowner's insurance.
- Nerdwallet.com - Here's a detailed comparison of the different homeowner's insurance companies.