What is homeowners insurance?

Homeowners insurance provides financial protection against disasters. A standard policy not only insures the home and the building, but your other valuable possessions as well.

Homeowners insurance is a packaged policy meaning that it covers both damages to your property as well as covers your liabilities or legal responsibilities for any injuries or property damage you or members of your family caused to other people. This includes damages caused by household pets.

What is covered by homeowners insurance?

Damage caused by most disasters is covered but there are exceptions. The most significant exceptions are damages caused by floods, earthquakes, and poor maintenance. For earthquakes and floods, you must buy separate policies to insure against them. Maintenance-related problems are a homeowners' responsibility.

What is in a standard homeowners insurance policy?

A standard homeowners insurance policy includes four essential types of coverage:

• Coverage for the structure of your home
• Coverage for your personal belongings
• Liability protection
• Additional living expenses in the event you are temporarily unable to live in your home

1. The structure of your house

This part of your policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning, or other disaster listed in your policy. It will not pay for damages caused by a flood, earthquake, or routine wear and tear. When purchasing coverage for the structure of your home, it is important to buy enough to rebuild your home.

Most standard policies also cover structures that are detached from your home such as a garage, tool shed, or gazebo. Generally, these structures are covered for about 10% of the amount of insurance you have on the structure of your home. If you need more coverage, talk to your insurance agent about purchasing more insurance.

2. Your personal belongings

Your policy also provides no-fault medical coverage. In the event a friend or neighbor is injured in your home, he or she can simply submit medical bills to your insurance company. This way, expenses are paid without a liability claim being filed against you. You can generally get $1,000 to $5,000 worth of this coverage. It does not, however, pay the medical bills for your family or your pet.

This pays the additional costs of living away from home if you can't live there due to damages from fire or other insured disaster. It covers hotel bills, restaurant meals, and other living expenses incurred while your home is being rebuilt/repaired. Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20% of the insurance on your house. You can increase this coverage, however, for an additional premium. Some companies sell a policy that provides an unlimited amount of loss-of-use coverage, but for a limited amount of time.

3. Liability protection

Liability covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by your pets. So, if your son, daughter, or dog accidently ruins your neighbor's expensive rug, you are covered. However, if they destroy your rug, you are not covered.

Your policy also provides no-fault medical coverage. In the event a friend or neighbor is injured in your home, he or she can simply submit medical bills to your insurance company. This way, expenses are paid without a liability claim being filed against you. You can generally get $1,000 to $5,000 worth of this coverage. It does not, however, pay the medical bills for yoru family or your pet.

4. Additional living expenses

This pays the additional costs of living away from home if you can't live there due to damages from fire, store, or other insured disaster. It covers hotel bills, restaurant meals, and other living expenses incurred while your home is being rebuilt/repaired. Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20% of the insurance on your house. You can increase this coverage, however, for an additional premium. Some companies sell a policy that provides an unlimited amount of loss-of-use coverage, but for a limited amount of time.

If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.