What Is and Isn't Covered by Homeowner's Insurance

Every homeowner's insurance policy is different. Properly understanding what's covered requires the homeowner to ask a lot of questions and to read the fine print on his or her insurance policy. Though there are differences between policies, there are some things that almost all insurance policies have in common.

Homeowner's insurance typically covers a broad range of possible damages. Your actual dwelling should be covered, as well as some other structures on the property, like a garage, fence, driveway or shed. However, if you run a business on your property in a separate structure, this is generally not covered by homeowner's insurance.

Personal property is typically accounted for in your policy as well. This is sometimes known as contents insurance. The amount of coverage for personal property may be limited on certain types of high-value items, such as jewelry or artwork, unless additional coverage is purchased for these items. 

Not all insurance policies offer homeowners the replacement cost of the property. Buying coverage for replacement cost helps to bridge the gap caused by inflation and loss of value when property items are no longer new. Otherwise, if a claim is made, it will be assessed at fair market value. Since some items depreciate quickly, this means you may not get enough money from a claim to replace the items that were lost or damaged. Replacement cost coverage ensures you're able to replace the items that were lost with similar items. If having this coverage is important to you, you'll want to be sure both your home and personal property are covered in this way.

Most homeowner's insurance policies include coverage for personal effects and separate structures on your property, but what happens if your car is broken into while it's on your property? This is where the distinction between your home and auto insurance policies can become a little blurry. Many homeowner's insurance policies will provide some coverage for personal items that are stolen from your car, but some of the more comprehensive auto insurance policies may cover this, too. Insurance companies may also limit the coverage available through your policy if the items stolen were purchased for use in the vehicle exclusively.

A wide range of natural disasters are typically covered by your homeowner's insurance policy, though not all of them. If you live in certain regions, you'll want to be sure to inquire about things like tornado or earthquake insurance. However, the typical inclusions for natural disaster include lightning, windstorm and hail. Your policy may also include coverage for smoke damage, or damage caused by falling items. Earthquakes and other natural movements of the earth are not typically covered by insurance policies, though you can purchase separate insurance to cover these types of events. 

House fires are one of the most common causes of damage to homes, and almost every homeowner's insurance policy covers against damages caused by fire. In the event of a home being completely destroyed due to fire, most standard policies covering fire also cover the cost of additional living expenses, such as the cost of hotel stays or even restaurant bills. (For related reading, see Understanding Your Insurance Contract.)

Vandalism is generally covered under an all perils policy unless it is specifically excluded. Vandalism coverage applies to unoccupied homes but not to vacant homes after a certain period of time. An unoccupied home still contains the personal property of the policy owner, but the property owner is absent. To be vacant, the home must be empty and free of the owner's personal property. An example of this would be if you were selling your home and moved out, taking all of your personal property with you. After a set period of time, vandalism coverage would no longer apply to your policy.

Flooding is much the same as earthquakes when it comes to homeowner's insurance. Flash floods and even sewer backups are not generally covered in basic policies, though you can ask your insurance company about adding coverage to your policy, especially if you live in a region that is prone to flooding. (For related reading, see: Understanding Lender-Required Flood Insurance.)

Most homeowner's insurance policies include coverage for injuries incurred by those on your property where you are liable. This could include something like someone slipping on a patch of ice that's on your front walk, or falling as a result of a broken step on your porch. This coverage is usually limited to a certain dollar value, so you definitely want to know how much coverage you have and exactly what's included. Umbrella insurance can provide additional personal injury coverage if you think you need it.

The deductible is the amount the insured party has to pay when a claim is made. You can decrease your insurance costs by increasing the amount of your deductible, meaning you'll be required to pay more if you ever do have an incident that requires you to make a claim. Keep in mind many mortgage providers require homeowners to carry a certain amount of insurance on their property with a deductible that's below a specified limit. Check with your mortgage provider before opting for the lowest possible rate with the highest possible deductible. It might be tempting to go for the lower rate, but if you ever do have to make an insurance claim, you might regret it if you're responsible for a $10,000 deductible.

It may not seem like particularly interesting reading material, but it's better to take the time to thoroughly understand what your insurance policy covers than to be stuck in a situation where you're not sure when you really need it. Ask your friends and family about the kind of insurance they have and what it covers. This might help you determine if you really need flood or earthquake insurance, what kind of deductible is normal, or if you want to increase the amount of personal injury coverage you have. And don't forget to ask your agent whether you'll need to get additional coverage to cover your original Van Gogh painting or that giant diamond ring.

At the end of the day, doing your homework before purchasing a policy could really pay off if you're ever stuck in an unfortunate situation when you actually need to rely on your homeowners insurance. 

(For related reading, see: Homeowner's Insurance Guide: A Beginner's Overview.)