Homeowners Insurance Basics
A home insurance policy is charged with an very vital task: offering financial security to make you (the policyholder) whole following an insurable event that damages your best asset—your home. But if you’re not aware what you are receiving with the acquisition of your home insurance policy, you may be putting your home and financial future in jeopardy.
Dwelling Coverage—a Shared Foundation
The amount of coverage you have for your residence covers the actual structure of your house plus any built-in appliances, wiring and plumbing. It also includes attached garages that share a foundation with your actual dwelling but does not cover unattached buildings or structures like fences and sheds (these would be included under Other Structures).
Your dwelling coverage could cover you for either replacement costs or actual cash value. While it may appear that this discrepancy is slight, coverage for replacement costs is in reality very different from actual cash value because replacement costs lets your insurance company to reimburse you the amount of money you actually need to purchase a similar item to substitute the one that was lost, damaged or stolen. That means your claim could be equal to the amount required to reconstruct your dwelling or purchase one that is similar and in a similar setting. Actual cash value, however, gives you the assessed property value regardless of whether or not it is enough to help you replace what you lost.
Personal Property Coverage—the “Things” Inside Your Home
The contents inside your dwelling are protected under the Personal Property/Contents section of your policy. This section covers all your furniture, clothing, electronics, jewelry, free standing appliances and other interior contents. The limit of coverage for your private property must be logical when compared to your dwelling coverage and most insurers require ratio limits that restrict your personal property coverage from exceeding a certain percentage of your dwelling limits.
Just like your dwelling coverage, your personal property coverage could provide replacement value or actual value which will deduct the lost, stolen or damaged property’s depreciation from the replacement value in order to determine the amount of the claim.
Liability Coverage—Accidental Injury to a Guest
It’s an unfortunate reality, but from time to time guests in your home have mishaps. They may trip over a loose walkway stone or fall on your deck, but if they are hurt and want to have their medical fees reimbursed along with pain and suffering, your liability coverage is there to handle the claim.
Loss of Use Coverage—An Uninhabitable Home
If your home becomes uninhabitable, then you may not be able to live in it until repairs are finished. If the loss is an insurable incident, loss of use coverage in your policy will reimburse you for any living expenses that you incur which are above your regular expenses while your home is in a state of disrepair.