Understanding Your Homeowners Insurance Policy

Homeowners Insurance Property and Liability Protection Explained

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When you are shopping for homeowners insurance, you may decide to use an online quote website or you may work with a local agent. However you choose to buy your policy, it's crucial that you know and understand exactly what kinds of coverage you have and what they protect you against.

A homeowners insurance policy is designed to protect homeowners against perils that often include water (not from a flood), fire, theft, and vandalism.

The typical homeowners insurance policy is divided into two parts: 1. property protection and 2. liability protection.

When you look at your insurance declaration page, which is usually the first page in a homeowners insurance policy, you should see the beginning of the property protection section. This section is in turn often broken down into four subsections:

  • A. Dwelling
  • B. Other structures
  • C. Personal property
  • D. Loss of use

What Is Property Protection?

Coverage A, dwelling insurance, typically covers your house, any attached structures, and the fixtures within the house, such as built-in appliances; plumbing, heating, and permanently installed air conditioning systems; and electrical wiring.

Many people underinsure their home because they don't determine the correct value for the dwelling amount. The insured value should cover the cost of reconstruction and not simply equal the amount of money your home could fetch on the real estate market.

When you file a claim, you will most likely have to pay a deductible, a set amount of money the insurer requires before paying any money on your claim.

Coverage B, other structures, typically covers detached structures such as garages, storage sheds, and fixtures attached to the land, including fences, driveways, sidewalks, patios, and retaining walls.

Coverage C, personal property, covers the contents of your home and other personal items owned by you or family members who live with you. This protection can be based on actual cash value (ACV) or the cost to replace the property.

The ACV paid for an item may be much less than the cost to replace it because, depending on its age, the actual value of the item may have depreciated a great deal.

Home insurance policies may provide limited coverage on certain big items, such as a fishing boat. However, most home policies do not cover motor vehicles.

Some items may have coverage limits, such as firearms, artwork, business property, electronic data, jewelry, and money. Extra coverage is usually available by adding endorsements to your policy.

Coverage D, loss of use, typically covers living expenses over and above your normal living expenses if you cannot live in your home while repairs are being made or if you are denied access by government order. These expenses might include the excess costs of staying at a hotel and eating at restaurants rather than cooking your own meals.

Homeowners insurance policies may provide additional types of property coverage such as for the removal of debris along with damaged trees and shrubs, fire department service charges, property removal, theft or illegal use of credit or transfer cards, the collapse of buildings, and glass breakage, if caused by a covered peril.

What Are Homeowners Insurance Endorsements?

Endorsements can be added to your policy at an additional cost to provide extra protection of your property beyond the standard coverage limits.

  • Guaranteed replacement cost coverage: This pays the cost to rebuild your home as long as you have met the requirements of your home insurance policy.
  • Extended replacement cost coverage: This insures your home for a specific value or percentage if reconstruction costs run over the dwelling limits in your policy.
  • Inflation guard: This increases the amount of your homeowners insurance to keep up with inflation so that you can maintain adequate coverage to replace your home in the event of a loss.
  • Scheduled personal property: This protects articles such as jewelry, furs, stamps, coins, guns, computers, antiques, and other items that often exceed normal policy limits in your regular homeowner's insurance policy. It often provides coverage that is broader than the coverage in the home insurance policy. There normally is not a deductible for this coverage. Increased limits on money and securities provide additional coverage for money, bank notes, securities, and deeds.
  • Secondary residence: This provides protection for a second home, like a summer residence.
  • Theft coverage protection: This broadens the theft coverage to include personal contents in your motor vehicle, trailer, or watercraft to be covered without proof of forcible entry.
  • Credit card forgery and depositor's forgery coverage: This provides protection against loss, theft, or unauthorized use of credit cards. It also covers forgery of any check, draft, or promissory note. No deductible applies to this endorsement.

What Is Liability Protection?

Your home insurance policy's Liability Coverages section is broken down into two parts: personal liability and medical payments.

The personal liability section provides coverage against a claim or lawsuit resulting from bodily injury or property damage to others caused by an accident on your property or as a result of your ownership of the home or personal activities anywhere.

This homeowner insurance coverage does not generally provide protection for business-related incidents if you have a home-based business or for accidents involving your car.

The medical payments section includes coverage to pay medical expenses for persons accidentally injured on your property regardless of fault. Medical expense payments do not apply to your own injuries or those of family members living with you or to activities involving your at-home business.

As with every home insurance policy, there are exclusions. Homeowner insurance does not provide general free legal advice under the liability portion of the policy; however, you may choose to purchase low-cost legal insurance to complement your other kinds of coverage.

The Bottom Line

Different homeowners insurance policies have different covered perils and exclusions, so check with your insurer to verify your policy has all the types of coverage you want and settles claims on the basis you have chosen: ACV or cost to replace. The information here is only a guide to help you understand the basics. The wording and conditions in your own policy are what matter when you have to file a claim.