6 Homeowners Insurance Coverages Explained

Sifting through homeowners insurance coverages can get quite confusing, especially when you’re trying to read between the lines of legal lingo to decipher what it all means. That’s where Clovered comes in. We’re located at the intersection of technology and real people, helping you better understand the ins, outs and intricacies of home insurance.

It’s important to know that homeowners insurance is broken into six different policy types, each fulfilling a unique need for different houses. While a policy for older homes includes different covered perils and looks much different than a policy for mobile homes, the coverages included within each remain the same.

Let’s take an in-depth dive into each of the coverages within a homeowners insurance policy, and get even more granular into the specific types and amounts you may need.

The structure of your home is protected by the dwelling portion of your policy. It helps pay to repair or rebuild your home to its condition if it’s damaged or destroyed by a covered peril, such as a hurricane or a house fire.

While it covers the structural pieces of your home, like the roof and walls, it also covers the structural integrity of your home and most things built into it. Things like the chimney, carpet, windows, doors, ceiling, drywall, air conditioning units and plumbing fixtures would be protected under the dwelling portion of your homeowners insurance policy.

Your policy’s dwelling coverage amount should be represented by your home’s value. So houses that are worth $500,000 should have at least $500,000 worth of dwelling coverage just in case it needs to be entirely rebuilt after a covered incident.

But insuring your home to its current value may not always provide you with enough coverage. Housing prices increase through the year, while your coverage limits remain the same. So it’s always recommended to enroll in dwelling coverage that’s about 5% more than your home’s going price. That gives you some wiggle room so you don’t have to pay out of pocket if your house is destroyed and you find that your maximum coverage amount wasn’t sufficient.

There are also two types of dwelling coverage you can enroll in: actual cash value or replacement cost coverage. Let’s dive into both coverages to figure out which one better fulfills your needs.

If a covered loss occurs, market value coverage can pay up to your home’s value on the open market before it was damaged. Even though your home may only cost $300,000 to rebuild, market value coverage could deem the location, acreage and proximity to good school districts increases your home’s market value. So it would pay up to its market value.

However, it usually goes the opposite direction. If your home costs $500,000 to rebuild, but it’s only going to $300,000 on the open market, your insurer would only cover up to $300,000 to rebuild your house. That means you’d either have to settle for a $300,000 home or pay the remaining amount out of your own pocket.

If a covered loss occurs and you have enrolled in replacement cost coverage, however, your insurer would pay the cost to rebuild your home (up to your policy’s maximums). This includes the cost of materials, labor and may even cover the additional expenses to bring your home up to code.

So if your home were only worth $400,000 on the open market, but it costs $500,000 to rebuild because your home was updated with granite countertops, custom cabinets and built-in structures with custom molding, your insurer would pay up to your policy’s maximum (in this reference it’s $500,000) to rebuild your home.

Structures that aren’t directly attached to your home are protected by the other structures portion of your homeowners insurance coverage. It helps pay to repair or rebuild structures on your property like sheds, fences, detached garages and carports. It can also kick in for pools, depending on your policy and whether it’s in-ground or above-ground, and either RVs or boats stored on your property that sustain damage due to a covered peril.

This coverage is typically up to 10% of your home’s dwelling maximum. So homeowners with $500,000 worth of dwelling coverage may have up to $50,000 in coverage per claim for the other structures on their property. If you don’t need that much coverage, you may be able to reduce your amount with your insurer, but it may not change your premium much — if at all.

It’s not the best idea to utilize this coverage for boats and RVs, especially if you have things on your property like a detached garage to store them. There’s a good chance your coverage will max out by repairing a fence and detached garage alone.

Coverage C can be somewhat self-explanatory, but there are certain factors you’ll need to know before deciding on a policy and coverage amounts. Personal property coverage protects your belongings if they’re damaged or destroyed by a covered peril.

Items that would receive coverage would be things like furniture, TVs, computers, other electronics, cooking materials, clothes, jewelry, sports equipment and other items you store on the property, such as lawnmowers and tools. These items would likely be covered if they were damaged, destroyed, stolen or vandalized by a covered peril.

You get to choose how much personal property coverage you’d like to enroll in, and you should get enough coverage to replace everything you own. In the event of a house fire or another peril that could potentially destroy everything, you want to make sure you’d be covered by your insurance policy rather than spending unnecessary money out of your own pocket.

Like dwelling coverage, there are two types of coverage you can enroll in: actual cash value or replacement cost. Depending on the type of policy you have, high-value items, like jewelry and collectibles, may be capped at a dollar amount per item instead of up to your policy’s total maximum.

Actual cash value coverage is the more affordable option from the pair. If your items are damaged or destroyed, it can reimburse you up to their market value, which factors in depreciation. So you wouldn’t get reimbursed the full $2,000 for a laptop you purchased five years ago.

Instead, your insurer would calculate the average lifespan of the laptop and reimburse you its market value. If they deem the laptop has a 10-year life expectancy, they may only reimburse you $1,000. Since actual cash value almost always pays out less than actual cash value, it also costs less in premiums.

On the other hand, replacement cost coverage takes a simpler approach — but also costs more in premiums. It simply reimburses you the amount you paid for each item, no matter how long you’ve owned it. So that $2,000 laptop you bought five years ago would still be worth $2,000 in your insurer’s eyes.

The best way to keep track of the value of all your personal belongings is to keep a home inventory list. Include the item you own, what you purchased it for and, if at all possible, include a picture of the receipt to prove to your insurer that it was actually purchased for that amount.

Whether you have actual cash value or replacement cost coverage, your jewelry and other expensive items will still be covered differently than the rest of your belongings. Jewelry is still covered by homeowners insurance, but you may have a maximum coverage amount of up to $2,500 per item or collection.

Jewelry, collectibles, fine china, and even musical instruments could fall into this category of specialized coverage. But there is an answer if these costly items have a special place in your home. You may need to add an endorsement to your policy for each item. You’ll have to endorse each item individually or schedule it on your policy at its value to get sufficient coverage for each item.

At this point, we’ve gone over the different coverages for your home, belongings and everything on your property. But loss of use coverage is designed for those who suffer claims damaging enough that force you to temporarily move out while your house is being repaired or rebuilt.

Also known as additional living expenses coverage, loss of use can help reimburse you for a hotel stay or rental home of equivalent value while yours is uninhabitable. It can also cover moving expenses, temporary storage facilities and pet boarding to deal with unexpected peril. If your temporary home doesn’t come equipped with a kitchen, it can even reimburse you for meals.

Loss of use coverage typically comes standard at 20% of your home’s dwelling coverage per claim, but you may be able to increase or decrease your policy maximums depending on your insurer. That means homeowners with $500,000 in dwelling coverage would likely have up to $200,000 worth of loss of use coverage per claim.

In addition to the maximum coverage amounts, each insurer may also put a limited timeframe to use this coverage. For homes that need to be repaired, your coverage may end six months after the initial damage. But if your home needs to be entirely rebuilt, your coverage may end 18 months after the initial damage. Each carrier has its own timelines, so it’s best to consult your insurer to figure out your exact details.

Liability coverage is designed to protect your financial wellbeing in the event of an accident on your property that you’re found liable for, accidental damage you cause to someone else or a dog bite that occurs both on and off your property.

For accidental injuries, it can help pay for things like hospital visits, surgery and other medical expenses. For accidental damage to someone else’s property, like cutting down a tree that falls onto your neighbor’s roof, it can pay up to your policy maximums for materials and labor costs. For dog bites, it can pay for medical expenses. And if one of the aforementioned incidents results in a lawsuit, it can also help cover legal fees during the process.

Standard homeowners insurance typically comes with $100,000 worth of liability coverage per claim. Depending on your insurer, you may be able to increase it to $500,000 or $1 million. And depending on your personal lifestyle, you may want to increase it.

Homeowners with dogs are recommended to opt for at least $500,000 worth of coverage. And those homeowners with common attractive nuisances, such as pools and trampolines, may want to opt for higher coverage amounts as well.

Those homeowners who are more likely to be found liable for an incident, such as those with dogs or pools, can opt for umbrella coverage to extend their liability coverage even higher. Umbrella coverage starts at $1 million and can increase your liability limits by $1 million increments from there. So high-net-worth individuals may want to consider investing in an umbrella policy.

Last but certainly not least is medical payments coverage. It’s similar to liability coverage in the sense that it pays for medical bills due to injuries that occur on your property. But it’s vastly different because it doesn’t matter who’s liable for the injury and it typically caps out around $5,000 per claim.

It can be used in conjunction with a health insurance policy to pay for minor medical bills related to injuries, such as X-rays, physical therapy and follow-up doctor visits.