As new homeowners will learn, borrowers need to provide their lender with proof of homeowners insurance for the full value of the property (usually the purchase price) in order to be approved for the loan.Typically, the standard insurance policy protects your new property and some possessions against damage or theft. But what, specifically, will it cover?
Limited Damage to the Home’s Interior and Exterior
Your insurer will compensate you for repairs or rebuilding costs resulting from fire, hurricanes, lightning, vandalism or other covered disasters. Damage that is the result of floods, earthquakes and/or poor home maintenance is generally not covered unless you have purchased ‘riders’ for that protection.
Loss or Damage to Personal Belongings
Clothing, furniture, appliances and most other home contents are covered if they are destroyed in an insured disaster. You can even get “off-premises” coverage that enables you to file a claim for lost jewelry, for example, no matter where you lost it. But there may be limits on the amount of protection.
According to the Insurance Information Institute, most insurance companies provide coverage for 50 to 70 percent of the amount of insurance you have on the structure of your home. If your house is insured for $200,000, there might be $140,000 worth of coverage for possessions. If you own expensive art or jewelry, and provide proof of their value, you can purchase a ‘floater’ policy to fully insure them.
Liability coverage protects you from lawsuits filed by others. If your dog bites your neighbor, your insurer will pay her medical expenses. If your kid breaks her expensive vase, you can file a claim to reimburse her. And if the neighbor slips on the broken pieces and successfully sues for pain and suffering or lost wages, you’ll be covered for that, too. Experts recommend having at least $300,000 worth of coverage.
Lodging During Repair or Rebuilding
This coverage reimburses you for hotel rooms, meals and other costs you incur while waiting for your home to become habitable after a covered damage. Most policies impose daily or total limits unless you purchase additional coverage.