Homeowners insurance is a package policy and provides financial protection against a variety of disasters. A basic (or standard) policy insures the home itself and the things you keep in it. This means that it covers both damage to your property and your liability (or legal responsibility) for any injuries or property damage you or members of your family cause to other people. This also includes damage caused by your pets.
Disasters are covered, but there are exceptions such as:
- Poor maintenance
You must buy separate policies for both flood and for earthquake coverage. Maintenance related issues are the homeowner's responsibility. Your homeowners policy states in greater detail any exclusions.
You may be wondering... "How much homeowners insurance do I need?"
The simple answer is, you need enough insurance to cover the following:
- The structure of your home - you need enough to cover the cost of rebuilding your home at current construction costs (don't include the cost of the land and don't estimate based on the price you paid for your home). For a quick estimate of the amount of insurance you need, multiply the total square footage of your home by current local building costs per square foot.
- The contents of your home - what it would cost to replace personal belongings (such as clothing, furniture, kitchenware, etc). There are two types of coverage for your contents on your homeowners plolicy that you many wish to purchase:
Actual cash value – pays to replace your possessions minus a deduction for depreciation up to the limit of your policy
Replacement cost – pays the actual cost of replacing your possessions (no deduction for depreciation) up to the limit of your policy
With either policy, you may want to consider purchasing a floater. A standard renters policy offers only limited coverage for items such as jewelry, silver,cameras, fine arts, etc. If you own property that exceeds these limits, it is recommended that you supplement your policy with a floater. A floater is a separate policy that provides additional insurance for your valuables and covers them for perils not included in your policy such as accidental loss.
- The cost of additional living expenses -if your home is damaged in such a way that you have to live somewhere else during repairs
Comprehensive personal liability coverage is an important part of your homeowner's insurance.
This coverage provides funds for you to pay for any injuries or property damage you or members of your family cause to other people. A minimum amount of $500,000 of liability coverage is recommended.