Buying a Home > Insurance Breaking Down Your Homeowners or Renters Insurance Policy

Team PV

“So unless I get robbed or my home floods, I’m paying an insurance company an expensive ‘just in case’ fee. Seriously?”

Sure, but like your health insurance, if an extreme “just in case” happens, you could be stuck footing an enormous bill to repair your roof or clear out your flooded basement. And that’s not all, folks- if you’re taking on a mortgage loan, lenders generally require you to have homeowners insurance.

Your homeowners insurance policy is twofold; it not only covers damage to your home and your property, but any damage caused by your property and the people (and pets) on it. Because nobody likes a lawsuit. Maybe this lady.

Damage to your property: 

Typically, homeowners insurance pays for damages caused by nature- hail or lightning, for instance- as well as fire, burglary, vandalism, riots, and other types of accidents or disasters specifically outlined in your policy (so it pays to read the tiny print). If Mother Nature gives you the finger and your home is destroyed in a catastrophic event, your policy pays to rebuild your home. If you needed to relocate while your home was rebuilt, you can be reimbursed for your hotel and meal expenses- check your policy for limits and restrictions.

One important piece of info we’d like to bring to your attention: when deciding how much to insure your home, figure out the cost to completely rebuild your home instead of insuring the purchase price. If that catastrophe happens, you don’t want to fall short on your rebuilding expenses. Factor in construction costs and your home’s square footage to get a baseline number and add up your home’s other features, like a garage or fireplace. You may need an additional replacement cost policy for your personal property.

Personal property:

Should a thief decide your Cannondale is his new sweet ride, your bike is covered under your policy. But be aware of depreciation when filing a claim- without extra coverage, most insurance companies will only reimburse you for what that Cannondale is worth now, not the original purchase price. Another example: let’s say your ceiling collapses… on your two-year-old laptop. Since laptops have an average life expectancy of five years, your insurer takes the average price of a new laptop and divides by the average life expectancy to get a deprecation rate. So if the average laptop price is $1,000, you’ll be reimbursed for $600 after depreciation.

If you’re really aiming for that A in Homeowners Insurance 101, take inventory of your trash and treasure so you know exactly what your personal property is worth and if you need more coverage in your policy.

Personal Liability:

Your trainwreck friend falls down your staircase, breaks a leg, and decides to sue (even though they were drunk and should’ve known better than to use something as complex as stairs). The liability portion of your homeowners insurance pays for any court fees on your behalf, as well as any awards issued by the court. Your insurance company will only cough up to the limit of liability- typically around $100,000 of liability in the average policy- so you may be comfortable with more coverage. Depending on your state, you may have no-fault medical coverage, and Drunky could also submit their medical bills to your insurance company.

When it comes to maintenance, you’re on your own- homeowners insurance won’t cover normal wear and tear on your home, like replacing the siding or a new roof. Fun fact: most policies won’t cover pools if you have a slide, diving board, or other accident waiting to happen attached to them. Treehouses and trampolines are also considered weapons of personal destruction and aren’t insurable either.

Renters, don’t think we forgot about you! Even though you’re not in control of the apartment or house you’re renting, you definitely need renters insurance- your landlord’s policy won’t cover you. Your policy covers your possessions within your (rented) walls as well personal liability and relocation expenses if your apartment is rendered unlivable. Renters will be less expensive than your average homeowners insurance, but if you want your engagement ring or other expensive items covered, you’ll also need to add a supplementary policy to your insurance. And if you’re renting a treehouse, you may be out of luck with insurance… but you’ll have the coolest apartment of all your pals.


Photo: Jason Paris

This article is 1st in the Insuring Your Home Series

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