The seller accepted your offer on the house you love—congratulations! Your new homeowners’ insurance policy is among the stacks of paper likely required at the closing. But do you really know what is covered by homeowners’ insurance and what isn’t? The only way to know for sure is to read the entire policy carefully. Coverage varies from state to state—for instance, depending on where you live, your insurance may or may not cover broken sewer costs, as the kind of pipes used and the infrastructure under the streets may be very different. As you read through your policy, take note of what it does and doesn’t include.
Your House and Other Structures on Your Property
Homeowners’ insurance typically covers your “dwelling,” meaning your house, and it may cover other structures such as sheds and detached garages. The policy will probably list specific “perils” that it covers. Common perils include:
- Severe weather, including wind and hail
- Accidental fire and smoke damage
- Sudden and accidental water damage (not flooding, seepage, or damage that has built up over time)
- Roof damage from the weight of snow or ice
- Damage from cars or airplanes
Insurers will limit coverage for your dwelling and structures to “replacement value” or “fair market value.” Replacement value is what it would cost to return the house to its condition prior to the damage.
Possessions that aren’t part of the house itself, such as furniture, rugs, and pictures, are considered “personal property.” Most homeowners’ policies will cover theft of personal property, up to defined limits in value. If you have very valuable things such as jewelry or electronics, you might have to insure them separately on a special “schedule” for an additional fee.
Liability and Medical Bills
If you accidentally hurt someone or damage someone else’s property and they sue you, liability coverage may pay. If a guest hurts themselves on your property, liability coverage may pay for that, too. Your policy may pay for medical bills associated with a guest’s injury regardless of who is at fault. Again, the policy will define limits: the policy won’t pay more than it spells out in writing.
What Homeowners’ Insurance Usually Doesn’t Cover
Insurance is meant to pay for accidental and unexpected loss. It won’t pay for intentional damage, and it won’t pay if you fail to maintain your home. If you neglect a leaking pipe and allow the damage to keep getting worse, your insurance won’t cover it. Other typical exclusions are:
- Earth movement (such as earthquakes or landslides)
- Water damage from floods, seepage, or sewer backups, or mold that builds up over time
- Damage from pests such as birds, vermin, or insects
- Damage your pet causes
- Loss from ordinances or laws (such as if your local government requires you to tear down, rebuild, or upgrade your home) or other government action
- Nuclear hazard
- Risky things such as pools, trampolines, and aggressive pets. You might be able to buy additional insurance to cover the risks of these items, but probably at considerable extra cost.
As you enter the wonderful world of homeownership, be sure you know what your homeowners’ insurance covers and what it doesn’t. Read your policy carefully. Your home and your financial future may depend on it.