Home insurance is a core aspect of homeownership, safeguarding against loss, damage to your property or possessions, or against claims arising from injuries suffered by others on your premises. A typical home insurance policy packages together several types of coverage that together insure your home against multiple hazards.
Typically, home insurance provides one main form of coverage called dwelling coverage, which will pay to repair or replace your home in the event that it is destroyed or severely damaged by a peril such as fire, wind, hail or vandalism. You want to make sure that your dwelling coverage is sufficient to pay the full cost of rebuilding your home (not just its market value, which could be less).
The second line of coverage is personal property – this covers your contents, such as furniture, electronics, clothing and appliances, if they are damaged or stolen. Personal property is usually covered both inside your home and when you take it outside your home. Create an inventory of your possessions and file receipts or photos so that you don’t buy too little coverage.
Secondly, there’s liability coverage, which covers the costs of a lawsuit brought against you by someone who is injured on your property and sues you for damages. (Liability coverage may also pay for damages caused by members of your family or your pet.) You have to pick a liability limit that lines up with how much risk you’re comfortable with. However, experts recommend at least $300,000.
Along with these basic components, a home insurance policy might include additional living expenses (ALE) benefits, which reimburse you for the cost of living elsewhere while your home is being repaired following a covered loss. ALE pays for hotel rooms, restaurant meals and other expenses while you’re out of your home.
It’s important to read over your policy carefully so you understand what is and is not covered. Many natural disasters – including flood, earthquake and others – are not covered by standard home insurance and may require additional policies or endorsements. Customising your policy to your location, home value and other needs means you are buying the right coverage for your situation.
