Do you know what homeowners insurance covers?
If you are planning to purchase a home or you currently own a home, you must carry homeowners’ insurance if you have a mortgage.
If you own your home outright, you’re not required to carry homeowners’ insurance but going without it means your home, which may likely be your most valuable, is not financially protected and neither is your personal liability if a third-party is injured in or on your property.
Certainly, most people understand what a homeowner’s insurance policy is for but many don’t know the coverages it provides or more importantly, the coverages it does not provide.
In this article, we intend to answer two questions:
- What Does Homeowners Insurance Cover?
- What Does Homeowners Insurance Not Cover?
Homeowners Insurance 101
Similar to auto insurance, homeowners insurance is a package of coverages that protect your home and your liability when you own a home. There are several types of homeowners’ insurance policies that are distinguished by the Form (insurance jargon) the policy is written on.
The form your policy is written on is what will determine the coverage you have, how your claim for physical damage to your home is valued, and what perils that are covered. In this article, we’ll discuss the H03 form because it is the most popular form that is offered by all of the national homeowner insurance companies.
What is Covered Under Your HO3 Homeowners Insurance Policy?
As we mentioned earlier, your homeowner’s insurance policy is a packaged deal that provides coverage for your property and personal liability, however, many companies offer additional coverages (riders) similar to how auto insurance is purchased.
|Type of Coverage||What it Covers||Typical Limit of Coverage||Deductible Applied|
|Dwelling||Covers the structure of the home and any attached/built-in appliances||Claims are generally based on replacement cost of the home (land or lot not covered)||Yes - Flat amount or % of structure value|
|Other Structures||Covers any structures on the property not attached to the house such as fences, barns, workshops||Usually 10% of dwelling limit. Can be increased if needed.||Yes|
|Personal Property||Personal belongings inside and outside of your home||50% of dwelling limit but can be increased or decreased as needed||Yes|
|Loss of Use||Pays for temporary relocation expenses while the home is under repair||20% of dwelling limit||Yes|
|Personal Liability||Pays for medical expenses and legal expenses if found liability for injuries or property damage to a third-party||Typically available limits are $100,000 to $1 million||No|
|Medical Payments||Pays medical expenses for third-party injuries regardless of fault||Typical limits are $1,000 to $10,000||No|
What Perils are included in the HO3 Homeowners Insurance Policy?
The following list of perils (what damage was caused by) are included in the HO3 Homeowners insurance policy:
- Fire and/or Lightning
- Windstorm or Hail
- Damage resulting from riot or civil commotion
- Damage caused by an aircraft
- Damage caused by a vehicle
- Damage caused by smoke
- Theft /Burglary
- Falling objects
- Weight of ice, snow, or sleet
- Accidental discharge/overflow of steam or water
- Sudden accidental tearing apart, cracking, bulging, or burning
- Plumbing damage resulting from freezing
- Damage from an artificially generated electrical current (must be sudden and accidental)
- Damage resulting from Volcanic eruption
What Your HO3 Homeowners Insurance does not Cover
The easiest way to understand what is not covered by your homeowners’ policy is to know that your homeowners’ insurance does not cover perils that another type of insurance will cover.
Additionally, not every state offers the same type of homeowners coverage because of common geographical perils that affect that state. For example, if you live in a Florida coastal community, your homeowners’ insurance may exclude windstorm coverage and the property owner must purchase the coverage from the state’s high-risk pool.
Here is a list of perils that are excluded in an HO3 homeowners insurance policy:
- Earth movement – includes earthquake, land or mudslides, and sinkholes
- Water damage from floodwater or sewer backup
- Damage resulting from power failure
- Ordinance of law (if your jurisdiction requires your home to be demolished or updated to meet local ordinances
- Intentional acts
- Government Action
- Mischievous acts (not vandalism)
- Damage caused by animals, rodents, birds, insects, or rodents
- Mold, fungus, or wet rot unless its related to a covered peril or hidden under the floors or within the ceilings or walls
Other Perils that may be covered You may not have Considered
Most insurance companies offer optional coverages that are not found in the HO3 form. In some cases, they are provided at no additional charge and in other cases, there is an additional premium charged.
|Additional Coverage||Coverage Provided|
|Debris Removal||This is coverage to pay for debris removal when debris is caused by a covered peril.|
|Grave Markers & Mausoleums||This coverage pays for the repair or replacement of a grave marker or mausoleum caused by a covered peril|
|Green Home||Also referred to as green improvement or reimbursement, this endorsement provides for the insurer to pay for "green material" when replacing a covered structure|
|Loss Assessment||Pays for the cost of an assessment of your home to determine the scope of your loss|
|Unauthorized use of credit cards||This coverage provides for the insurer to reimburse the insured for fraudulent credit card charges (typical limit is $500)|
|Identity Fraud||Helps with the cost of restoring a stolen identity|
Sub-limits that are part of Your HO3 Homeowners Insurance Policy
Although a typical HO3 homeowner’s insurance policy does cover your personal belongings, it’s important to note that some personal items have sub-limits (limits less than the category limits).
For example, if you have a home insured for $500,000, your typical limit on personal property would be 50% or $250,000 however, if your jewelry is stolen or damaged, that limit is not applicable because there are sub-limits on certain classes of personal belongings.
|Personal Belongings subject to Sub-Limits||Sub-Limit|
|Watercraft||$1,500 (subject to type of watercraft)|
|Business Personal Property||$2,500|
Homeowners who feel these sub-limits are insufficient can “schedule” coverage on these items based on their appraisal or agreed value or purchase a stand-alone Personal Articles Floater that will cover these items on or off the premises of your home.
Frequently asked Questions
Is theft covered under my homeowners policy?
In most cases, theft of personal belongings is covered as long as there is evidence of forced entry into your home.
What is a Personal Articles Floater?
A personal articles floater (PAF) is a stand-alone insurance policy that you can use to insure your personal belongings that are underinsured in your homeowners policy. The PAF covers your insured articles for the appraised or agreed upon value and covers the property on a worldwide basis.
How can I prove what personal property I own?
There are several free online programs that you can access to create a list of personal property in your home. You can also take photos or video your property in case you need proof of ownership after a claim.
Why is my insurance coverage less than my mortgage amount?
If your insurance is less that your mortgage or the amount you paid for your home, this is because your mortgage and the sales price included the lot which is not covered.