What Damage Does My Homeowners Insurance Cover?
Understand the Fine Print on Your Homeowners Insurance Policy
A standard homeowners insurance policy, also called an HO-6, covers only specifically named perils. A peril can be thought of as a risk, something that can cause damage to your home. Some named perils are broader in scope, meaning more potential losses would be covered under that particular named peril. Others are very narrow in scope and will cover only one or two very specific scenarios.
The largest amount of coverage on a homeowners policy is usually for the house itself, also called Coverage A, or Dwelling Coverage.
Commonly covered perils:
- Windstorm or Hail
- Riot or Civil Commotion
- Impact by Aircraft
- Impact by a Vehicle
- Vandalism or malicious mischief
- Falling objects
- Weight of Ice, Snow, or Sleet
- Sudden water discharge from plumbing or appliances
- Sudden tearing/bulging of heating or cooling systems
- Freezing of plumbing system
- Artificially generated electrical current
- Breakage of glass
Your homeowners insurance policy may also cover personal liability up to the amount you’ve selected (typically $100,000 or higher), medical payments for bodily injury for people other than the insured (typically starting at $1000, with options up to $10,000 or higher), and up to $500 for damage caused to property of others by an insured.
Sudden & Accidental: Important Words to Note
In the above-named perils, the word, ‘sudden’ appears several times. This offers a good guideline for understanding which perils may or may not be covered by a homeowners policy. The other word to think of that helps us to understand coverage is, ‘accidental’. If a loss is both sudden and accidental, it’s more likely that it falls under one of the covered perils. However, sudden and accidental may actually be a better indicator to use in disqualifying a loss as a covered loss. If the loss is neither sudden nor accidental, it probably isn’t covered. In example, a 40-year-old leaking roof which allows rainwater into the attic that damages the walls and floors throughout the house, a roof that has been leaking for some time, would not be a sudden loss and any damage caused as a result likely would not be a paid claim. For a number of reasons, an insurance policy cannot serve as an effective replacement for a home maintenance policy.
There may also be a number of Riders or Endorsements that can be added to a policy to extend a coverage or to add a new coverage which does not exist in the base policy.
Additional riders or endorsements might include the following:
- Earthquake and/or mudslide
- Backup of sewer or drains
- Building Ordinance or Law
Personal property coverage: What about my Stuff?
A standard homeowners policy will also provide coverage up to a chosen limit for the personal property of the insured. You can think of personal property as the things you would take with you if you were moving in or out of the house. Many times (but not all) the value of this coverage is determined as a fixed percentage of the dwelling coverage. So if a house has an insured reconstruction cost of $200,000, then the base coverage for personal property might be automatically calculated at $150,000, or 75% of the dwelling coverage. The insured can usually choose to adjust the personal property number upward, but not usually downward.
Also, be aware of some limitations on personal property coverage. That really fancy ring kept in the jewelry box, or the antique piano that has been in your family for decades may need special coverage as there are some limitations to values covered by a standard homeowners policy. These items might also require an appraisal (before a loss occurs) to document their value. Even for those items that do not require an appraisal, it is always a good idea to take pictures of the items in the house to help prove ownership of the items in the event of a loss. Storing these pictures digitally and utilizing cloud storage will keep the photos safe from any perils that may create a loss at the home.
What’s not covered by my Homeowners Policy?
Insurance, by the nature of the product itself, does not leave much room for misunderstanding when it comes to the facts of coverage, and what is or is not covered. However, that doesn’t mean it isn’t an often confusing topic. Any loss that does not fall into one of the named perils of the policy would not be a covered loss, as would any loss for which the optional coverage was not taken, like the examples of Earthquake Landslide, or Building Ordinance or Law provided above. For many homeowners, the largest gap in coverage would be for a loss due to floods, including rain water. Flood insurance is coverage provided through a different type of policy and is usually specifically excluded from a homeowners policy.
As important as whether or not a loss is covered is the question of how a given loss is covered. Some losses may be covered for Replacement Cost, and some may be covered for Actual Cash Value. The two methods for issuing payment for a claim may apply to different parts of coverage within a homeowners policy, (I.E. Dwelling coverage vs. Personal Property) and the method of computing how much the insurance company will pay is very different as well. To gain a quick understanding of how this might affect your coverage, you can think of it this way: Replacement Cost provides enough money to buy a new one of whatever it was that was damaged or lost. Actual Cash Value provides claim payment based on a (typically) depreciated value. Depending on how your policy is structured, Actual Cash Value may apply to wear items, like a roof, as well.
As policies and default options may vary by company, always check with your insurance company to clarify what is covered, and as importantly, how it is covered.