Standard Homeowner Insurance Policies Explained

Homeowner’s insurance typically covers damage caused to your home and belongings by lightning, storms, fires, burst water pipes and liability for injuries sustained by burglars during a home invasion.

Standard home insurance even offers you protection from explosions, hail storms, and damage caused by vehicles (even air planes). In terms of its scope, your homeowner’s policy also covers damage caused to your garden and additional structures (your garage, shed, gazebo, etc.).

Homeowner’s policies can vary widely between carriers so be sure to check the inclusions and exclusions of each policy quote you get.

Typical exclusions you’ll want to look out for include:

• Acts of war
• Subsidence (natural land sinking that can damage your home)
• Flood damage
• Wind damage

The last two are especially important to have if your home is in a hurricane area.

The 3 Most Common Levels of Homeowner’s Coverage

1. The Extended Replacement Cost Portion: Your home will be covered up to a cap or specified dollar amount. For instance; the dwelling coverage of your homeowner’s policy is $200,000.00 and has a cap of $300,000.00. If you had a house fire and your home needed to be rebuilt, then your extended replacement cost coverage would pay as much as $300,000.00 of your rebuilding costs.
2. The Actual Cash Value Portion: This means that your home and belongings will have coverage equal to the depreciated amount of their replacement value at the time of your loss.
3. The Guaranteed Replacement Portion: There won’t be a maximum pay-out amount or a cap on the guaranteed replacement portion of your coverage. For instance; your home was originally worth $250,000.00, but you’ve made improvements that make it worth $350,000.00. If your home were destroyed by a fire your guaranteed replacement coverage would enable you to restore your home to its $350,000.00 condition.

This is a more costly type of homeowner’s coverage, but it also provides the most protection.

You may also want to consider what’s known as inflation protection. This type of coverage adjusts your homeowner’s policy annually to include increases in rebuilding costs, as determined by your insurance carrier's inflation statistics. With “inflation coverage,” if your home is damaged or destroyed, you won't be under-insured.