What Does Homeowners Insurance Actually Cover?

As I was recently perusing my homeowner’s insurance policy (yes, financial planners do that sort of thing) I got to thinking.  What exactly does this cover?

If you took out a mortgage when you bought your house you were required to have homeowner’s insurance.  The bank wasn’t about to loan you money without knowing their asset was insured.  But if that was several years ago and you can’t recall the name of the agent who sold you the insurance, your coverage might be out of date.

[See Lee Ann’s tips on life insurance policies for your children]

If you’re like me, reading about insurance may put you to sleep.  But, grab a cup of coffee and stay with me for a few paragraphs – this is important.

A Little Background

Homeowners insurance is really two types of insurance rolled into one.  It has property coverage, which covers your home, its contents, loss of use and even your personal possessions that may disappear away from home.  But it also has liability coverage for accidents that can happen to other people at your home.

There are also different levels of coverage.  Basic (HO-1 and 2) list the specific “perils” that are covered.  In most cases these will NOT include floods, earthquakes, war or even termites.   A more comprehensive form (HO-3) covers “all risks” but specifically lists those it excludes (floods, earthquakes, war, even termites).  So the first question you should ask is what coverage do I have and what’s not covered? And for those perils not covered, how likely is it to happen? PLEASE NOTE: over 30 different states have had earthquakes in the last 100 years…

The general idea is that homeowners insurance should cover what it would take to replace your house & its contents.  Which means if you haven’t figured out what all that is worth lately, you may be under-insured.

So What Can You Do?

First, of course, is to determine the current value of your home and see that the Dwelling piece of your coverage is adequate to replace it.

If you have other structures on your property, these are also covered, so make sure you know the value of those buildings as well.

Since the Personal Property coverage can range from 50%-70% of the Dwelling amount, this is where you should spend some time with your calculator.  Walk from room to room snapping photos or videos of your furniture, TV, computer, IPAD, espresso machine.  Make a list of each room’s contents.  Keep receipts for the big- ticket items.  MOST IMPORTANTLY-store all this information outside of your house!

Once you’ve done that, add up the values and check it against the formula in your homeowner’s policy.  Are you really going to be able to replace everything of value?

If not, consider adding what are called Riders to your policy:

Most policies limit loss of currency to $100, so if you typically keep a wad of cash stashed under your bed, make sure you have a rider to replace it.

Jewelry is another typical item that requires a separate rider.  Chances are even the diamond wedding ring would need to be covered separately in order to replace it.  Your insurance company may require an appraisal for individual items of value before they will write the rider, but it’s well worth the cost.

Many policies now offer a computer rider- to cover all that technology we can’t live without these days.  And if you have a home-based business, it’s critical to understand what’s covered by your existing homeowner’s policy and what’s not.  Chances are you may need a separate business policy to replace your home office and its contents.

Other riders that can be added are additional theft coverage, boats or recreational vehicles you park at your home, sewer and drains backup and even coverage for landslides or ground collapses.

The cost of many of these riders is minimal compared to what you’re protecting.

If you last looked at your homeowners coverage when chintz was a popular chair covering, now’s the time to update your protection (and maybe even your couch).

About the author

Lea Ann Knight, CFP®

Lea Ann is the Principal of Garrison/Knight Financial Planning as well as the creator of the financial literacy site, Financially Fit After 40. She also writes a monthly column as the Money Expert for All You Magazine.


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  • does anyone know if a tree falls from a neighbors yard and crushes your work trailer, should their homeowners insurance pay to replace it? The tree was very much alive and it was pulled out of the ground by a storm. And would it also pay for lost wages since my husband can not use his work trailer to do jobs?

  • Hi,

    What if i am paying too much?….my home was figured at 396,000 to replace…and that was a fair and i think accurate quote, especially since i am on the border of the projects ( it’ not the best area) and my neighbors on either sides are pigs and their property shows it. BUt recently an inspector came out and now the company is saying that it is worth 500,000 to replace!…i am shocked…it just cannot be….houses in my area sell for around 195,000….on the high side….what can i do? i will be priced right out of my home..

  • HI Angelia

    It’s possible some portion of your medical costs and/or lost wages could be covered by the liability coverage on your friend’s homeowners insurance. It will depend upon the circumstances that caused the injury and the extent of coverage under your friend’s specific policy. I suggest you and your friend contact his/her insurance agent and ask. The agent will know the specifics of the policy, what’s covered and what’s not. That agent can also guide you through the claims process with the insurance carrier.

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