What Does Home Insurance Cover? Here's How a Standard Policy Works

What does a homeowners policy cover?

13:20 30 December 2019

While many policyholders believe that a homeowner's policy is merely for the dwelling itself, there is so much more to this type of protection. As a line of the insurance that began as simple Dwelling Fire policies, Homeowner's policies now encompass a variety of risks, perils, and exposures to protect homeowners, their property, and their liability exposures.

Homeowner policies vary greatly amongst insurers. Despite the vast changes in policy endorsements, underwriting guidelines and standard coverage, most homeowner's policies are very similar. Most homeowner's insurance covers the following:

Dwelling Coverage

A "dwelling" is a primary place of residence that is a single-family home. The most important coverage on a homeowner's policy, dwelling coverage pays for direct or indirect damage that occurs on, within, or to your house.

While the policy form determines the perils that are insured against, common policy conditions include coverage for wind, hail, fire, collapse, and theft. Dwelling coverage includes the house, all permanently attached fixtures, and attached structures (like a garage).

Contents Coverage

Everything within your home is covered under the "contents" coverage section of a homeowner's policy. The limit of insurance within this coverage is oftentimes a specific percentage of the dwelling amount, typically 50%, but can be raised by paying extra premium. Contents would include anything within the dwelling, within a particular distance of the dwelling, and certain items as they travel. Upon insuring your house automatic coverage is given to certain types of personal property, but what items would need to be scheduled separately? This is a dilemma that can be determined by comparing included content coverage with a separate policy for high-value items.

Specific endorsements or policy types are available for unique risks. For example, an individual with a collectible coin set or a high-value camera may want to schedule these items at a higher price than insurers are willing to provide. In cases like these, an Inland Marine policy or endorsement may be appropriate. While these items are still contents, they would be subject to specific limits and perils due to their high risk, high-value characteristics.

Other Structures Coverage

Many homes have structures or items that fall outside the definition of both "dwelling" and "contents." Thus, other structures are intended to cover those items that are on the insured property but not necessarily attached to the building. This coverage is also automatic in most homeowner policies, and the limit is standard at 10% of the dwelling value. However, similar to contents coverage, additional limits of insurance can be purchased.

Other structures may include items such as pole barns, swimming pools, fences, and more. Each insurer, and the forms that they procure, set the foundation for the definition and valuation of other structures.

Additional Living Costs/Loss of Use Coverage

Another coverage that is standard for homeowner policies is Coverage D or "Additional Living Costs/Loss of Use." This is where the homeowner policy begins to go above and beyond what most policyholders expect to be covered.

Additional living costs coverage kicks in when your home is damaged and unable to be used in daily living. For example, if a tornado tears the roof off of your home, you will need somewhere for your family to safely reside while it gets repaired. That would be covered under this coverage part in a homeowner policy. The typical limit for this coverage is 30% of the dwelling value.

Liability Coverages

Interestingly enough, coverage of physical items is not the sole purpose of a homeowner policy. Perhaps the greatest coverage that you can possess is liability coverage under this policy type. Liability is provided on both a "per occurrence" and "aggregate" basis, meaning that more than one claim may be covered during the policy term but only up to the policy limits.

If you are found responsible and negligent for a loss of property, health, or income to another person or entity, your homeowner liability may cover you. Homeowner liability is often restricted to a premise, but it can cover a plethora of legal responsibilities. If someone falls on your property, your dog bites a guest, your tree falls on a neighbor’s house, or your brush fire travels to a neighboring property, your homeowner policy may cover it. Liability is essential coverage to have in today's society.

Supplementary Coverage

Many coverage types are present in a homeowner policy that provides coverage above and beyond other limits. Most of these coverage options are provided in addition to the policy limits. Examples may include fire department service charges, trees and shrub replacement, and defense costs. In most instances, in order to attain supplementary coverage, the underlying claim must first be covered.

Standard Home Insurance Policy Overview

Though most homeowners purchase a home insurance policy for dwelling protection, the provisions of this type of policy extend far beyond the initial purpose. A home insurance policy may provide coverage for both the dwelling itself and the liability associated with that premise.