What Is Homeowners Insurance?
For most people, a home is their most valuable investment. While that fact is reason enough to purchase a homeowner's insurance policy, it's also why lenders require having this type of insurance as a condition of mortgage approval; they want to protect their investment, too.
Homeowners insurance offers both property and liability coverage. Property insurance pays for the replacement or repair of the home and its contents if they become damaged under specific circumstances, and liability insurance covers expenses arising from a lawsuit if someone is injured on the premises and decides to sue you.
What Is in a Standard Homeowners Insurance Policy?
The following is a breakdown of the typical homeowner's policy, which consists of two sections containing individual coverages designated by the letters A through D and E through F, respectively.
Section 1: Property Coverage
Coverage A – Dwelling: provides protection for your home and the structures attached to your home, such as a garage
Coverage B – Other Structures: covers the structures other than your home that are located on the property, such as a detached garage or shed
Coverage C – Personal Property: covers the contents of your home, like furniture, appliances, clothing, toys, and more
Coverage D – Loss of Use: pays for a hotel and other temporary living expenses in the event that you have to vacate the home due to damage from a covered loss (e.g., fire)
It's important to be aware that not all causes of loss are covered. The basic policy is designed to cover those risks that the vast majority of homeowners will assume, which keeps the premiums affordable for most people. This is why, for example, flood insurance must be obtained separately. Not everyone lives in a flood zone, just like not everyone lives in area that is vulnerable to earthquakes or tornadoes.
Section 2: Liability Coverage
Coverage E – Personal Liability: provides coverage when you are legally liable for the bodily injury or property damage to others that occurs on the premises (e.g., a guest slips on your icy steps and ends up with a broken bone)
Coverage F – Medical Payments: covers reasonable medical expenses incurred by people who become injured on your property
The difference between Coverage E and Coverage F concerns who is "at fault" for the injury. If your daughter's best friend is visiting and falls down and cuts her chin open on the concrete patio while the two girls are running around the yard, then Coverage F would reimburse you for her medical bills up to the coverage limit. If the parents of the injured child claim that the accident was your fault and decide to sue you, then Coverage E would pay for your legal defense costs up to the coverage limit.
Another key point about medical payments is that Coverage F on a homeowner's insurance policy is not the same as medical coverage on an auto insurance policy. In a car accident, the medical portion of the policy covers everyone in the vehicle who was hurt, including the insured, or "first party." On a homeowner's policy, however, the medical portion covers only those who are not insured under the policy and is commonly referred to as "third-party coverage."
What Losses Are Covered by Homeowners Insurance?
There are three forms of homeowners insurance policies available: Basic, Broad, and All Risk. They differ primarily in the number and types of perils against which they protect the homeowner.
Basic form homeowners insurance is a barebones policy that protects only against vandalism, fire, lightning, windstorm, hail, burglary, robbery, glass breakage, and smoke damage. Broad form homeowners perils include water damage from plumbing and home appliances, falling objects, weight of snow and ice, frozen plumbing, building collapse, family vehicle damage, sudden heating system loss, and electrical damage to appliances. The Basic and Broad forms are also known as "named perils" coverage. If a peril, or risk, is not specifically named in the policy, then it's not covered.
An All Risk homeowners policy, on the other hand, offers "open perils" coverage, meaning that it insures against everything except what is specifically excluded. Some perils that aren't covered include but are not limited to earthquakes, floods, landslides, pollution, and acts of war.
Homeowners Insurance Riders
A "rider" is an optional add-on to an insurance policy. It's purpose is to fill in the gaps, if any, in your coverage. For example, you may wish to include riders for valuables such as jewelry, musical instruments, fine art, furs, antiques, and firearms. The coverage limit is subject to the appraised value of the items to be insured. Insuring these items separately from the home itself is as close to "all risk" coverage as one can get, and there are usually no deductibles.
As mentioned above, the typical homeowner's policy does not include flood damage. Some carriers do offer a flood insurance rider, but if your chosen insurer does not, then you can obtain flood coverage through the National Flood Insurance Program (NFIP). If you need coverage for earthquake damage, your insurance broker can help you find companies that offer that as either a rider or a separate policy.
How Much Coverage Do You Need for Homeowners Insurance?
Since the policy includes both property and liability coverage, there's a separate policy limit for each type. In general, most standard policies provide $100,000 to $300,000 in liability coverage, but it can be as high as $500,000, or perhaps more if you feel that you need it.
In terms of property damage, there are three homeowners insurance coverage levels to consider. They differ according to the valuation method used to determine the policy limit.
This level of coverage pays whatever it costs, up to the prescribed coverage limits, to repair or replace your home and/or possessions.
Actual Cash Value
This level pays the replacement cost of your home and/or possessions minus the cost of depreciation. Most often, payments made for damages under this level are less than the homeowner paid for the lost or damaged item(s).
Extended Dwelling Replacement Cost
At this level, the insurer pays the costs to rebuild your home and/or replace your possessions based on their value before the damage took place, even if those amounts are up to 25% greater than your coverage limits. The homeowner is, therefore, fully protected against inflation and the rising costs of construction.
While replacement cost policies are more expensive than actual cash value policies, the protections afforded by them are well worth the money should a catastrophic loss occur.
Choosing a Homeowners Insurance Policy
Bryant Asset Protection recommends that every potential homeowner's insurance client have a thorough discussion with our licensed professional staff to ensure that you are considering the appropriate types and levels of coverage for your circumstances. As an independent agency who contracts with a vast array of A-rated insurers, Bryant Asset can assist you in finding the right homeowners insurance in NY at an affordable premium. We offer New York State homeowners insurance for residents of Albany, Delmar, Troy, Saratoga Springs, and the rest of the Capital Region. To begin protecting your most valuable asset, send us an email or call us at either (518) 439-1141 or 1-800-439-6051 for a free, no-obligation consultation regarding your coverage needs.