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Understanding Homeowners Insurance

For homeowners, having homeowners insurance is a smart move.

However, there are many aspects of homeowners insurance that many consumers do not understand fully. In order to obtain affordable home insurance coverage, it also is a smart move to learn what is covered by homeowners insurance before purchasing a policy.

Why Homeowners Should Have Homeowners Insurance

Your home is likely to be you single most expensive investment, and as such, protecting that investment is important.

Homeowners insurance provides that protection. This form of insurance provides financial protection against a wide range of disasters, which can fire; lightening; windstorm, including hurricanes and tornadoes; hail; explosion; riot or civil commotion; smoke; vandalism; falling objects; weight of ice, snow or sleet; and freezing of plumbing, heating, air conditioning or other household systems. A standard homeowners insurance policy will insure the home itself as well as your personal property.

There are certain events that are excluded from homeowners insurance coverage. Damage caused by flooding or earthquakes generally is not covered, nor is damage resulting from ownership neglect. In order to protect your home against damages caused by flooding or earthquakes, separate insurance policies are required.

In addition to protecting your home and possessions, homeowners insurance is a package policy, meaning that it covers both property damage as well as your liability or legal responsibility for any injuries or property damage members of your family or you might cause to a third party, including any damage caused by household pets.

What Standard Homeowners Insurance Covers

A standard homeowners insurance policy provides four types of coverage:

Coverage of the structure of your home.

This component of your policy covers the costs to repair or rebuild your home if it is damaged or destroyed by a disaster included in your policy. Many insurance experts recommend that policyholders purchase enough homeowners insurance to guarantee enough coverage to completely rebuild their homes if necessary.

Many standard homeowners insurance policies also cover structures that detached from your home, such as a garage or gazebo. These structures typically are coverage for about 10 percent of the insured amount for the structure of your home.

Coverage of your personal possessions.

This component of your policy covers the costs to repair or replace personal property, such as furniture or clothing, if they are damaged or destroyed by a disaster listed in your policy. Many insurance companies will provide coverage for 50 percent to 70 percent of the insured amount for the structure of your home. The best way to determine how much coverage you will need to cover your personal belongings is to conduct a thorough home inventory.

Coverage of personal property also extends to property that is not located at the home. This coverage is generally limited to 10 percent of the insured amount for the structure of the home, and can include damages incurred by unauthorized use of credit cards.

Trees, plants and shrubs also are included by standard homeowners insurance policies as personal property and is generally covered for 5 percent of the insured amount for the structure of the home. It is important to note that these items are not covered if damaged by wind or disease.

Liability protection.

This component of your policy covers the policyholder against lawsuits for bodily injury or property damage caused by you or a family member to a third party. This portion of the policy covers the costs of defending you in court as well as any court-mandated awards.

While liability limits generally start at around $100,000, many insurance experts recommend that policyholders purchase at least $300,000 in coverage. When deciding on the amount of coverage you want to purchase, you should consider all that you could lose if you find yourself in the middle of a lawsuit.

Additional living expenses if you are unable to live in your home following a disaster.

This component of your policy covers the costs of living away from your home if you are unable to live there as a result of a disaster listed in your policy. This portion covers hotel bills, restaurant meals and other living expenses incurred while you are unable to reside in your home.

Many policies will limit this coverage to about 20 percent of the insured amount for the structure of your home.