Homeowners insurance should adequately cover these 5 items

Great rates aren't the only consideration during the home buying process, though. Having enough insurance to protect your house and your family should also be a central concern. Unlike auto insurance, you’re not required to buy homeowner's insurance – but that doesn't mean you shouldn't begin to think about structural coverage and potential rebuilding costs.

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What is covered by standard homeowners insurance?

Standard homeowners insurance policies cover the cost to repair or replace your home, as well as its contents from a damaging cause like a falling tree, theft and vandalism, fire and smoke or other weather-related damage. Many policies also cover living expenses while your home is being repaired or rebuilt, your furniture, clothing, appliances, heating and cooling systems, and other possessions in your home.

And, with liability coverage, if someone not living in your home is injured on your premises, their medical bills are also paid.

There are two types of coverage to consider:

Replacement cost coverage: This coverage covers construction costs to rebuild your home as it was before it was destroyed, or to buy new personal items at current value to replace what you lost.

Actual cash value coverage: Actual cash value coverage covers the cost to repair or replace your damaged property, minus depreciation. That means in the event of a loss, the total costs to rebuild your home may not be covered.

DOES YOUR HOMEOWNERS INSURANCE COVER EMERGENCIES?

In any event, these 5 items should be adequately covered by homeowners insurance:

1. Dwelling

Dwelling insurance is at the heart of homeowners insurance. It covers your home – the walls, floors, ceiling and any other structural component damaged or destroyed by things like hail, wind or fire. It’s always best to carry enough insurance to rebuild your home.

This is not the same as the market value of your home, and in some cases, may be higher or lower than the current market value.

2. Personal property

This coverage covers all the things you own, like clothing, furniture, your computer, tools, and other expensive items. This coverage also helps pay to replace or repair your personal belongings after a covered loss, such as a wildfire, hail or smoke damage.

How much personal property coverage you need depends on the value of your property and is calculated as a percentage of your policy’s limit for your entire home. It’s common to see coverage in the range of 70% to 80% for personal property.

3. Liability

Liability insurance provides coverage for you financially if someone not living in your home is injured on your premises. Imagine that your dog bites a neighbor. According to the Insurance Information Institute, claims for dog bites on homeowners policy run about $400 million each year and account for more than one-third of all insurance claims. In some cases, liability may also cover the cost of any damage you (or your child) do to someone else’s property.

It’s recommended that you carry coverage that matches your net worth. Most insurance companies offer up to $500,000, which should cover a serious fall or another injury.

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4. Other structures

This part of your homeowners policy pays to replace or repair other structures on your property, like a detached garage, a gazebo or a fence. But they are only covered if they are damaged by a covered risk, like vandalism or a tree falling on your shed. Some policies also cover things not on your property, like a boat dock.

The amount of coverage you need is based on your total homeowners coverage. For example, if you have $500,000 in dwelling coverage, you might have up to $50,000 in coverage for other structures on your property.

5. Flood

If you live in a flood zone, you will likely be required to purchase flood insurance as part of your homeowners policy. In fact, if your mortgage is held by Fannie Mae or backed by the government, you are required by law to purchase flood insurance if you live in a special flood hazard area (SFHA).

How much coverage you need depends on your lender. Federally-backed mortgages, like VA loans and FHA loans, require you to have enough insurance to cover the outstanding principal balance on your mortgage or the maximum limit of coverage on your policy.

The bottom line

Your home is one of the most expensive purchases you’ll ever make, so why not make sure you’re covered for rebuilding costs or replacement costs in case the unexpected happens? Yes, homeowner's insurance can be expensive, but unlike car insurance, you’re not required to buy a homeowner's policy.

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