Household Insurance
Household insurance, also known as homeowner's insurance, is usually stipulated as a mandatory requirement within the contract between you and your mortgage lender. Even if you are not legally required to purchase household insurance, it is still a good idea to do so. Household insurance policies can cover a wide range of hazards. However, there are many different categories of coverage in a household insurance policy, as well as additional coverage, which you may wish to purchase. The various categories of household insurance coverage are as follows:
Dwelling - This section covers the house itself, but does not include the land on which it sits. Usually, a standard policy will include a clause, which states that so long as the dwelling is insured for, at least, 80 percent of its true value, losses will still be paid at replacement cost. This clause is put in place to protect the homeowner from inflation fluctuation, during the policy term.
Other Structures - The purpose of this section is to cover buildings on the property, other than the dwelling. These structures may not be covered if used for business purposes. The limit on their value is usually set at no more than 10 to 20 percent of the actual dwelling's value, but this can be increased through an endorsement on the policy.
Personal Property - This covers the homeowner's belongings on the property and within the dwelling. Usually, there will be limits of value per class of item; there will also be stipulations as to where certain items must be kept in order for them to be covered for theft. For example, a lawnmower may not be covered if it is left in the front yard with no form of security.
Loss of Use & Additional Living Expenses - If the home is rendered unusable for a period of time, caused by a hazard covered under the policy, then the household insurance may cover the additional living costs, up to a certain limit. This may include loss of rental income, if part of the dwelling was rented out. However, this will not cover services such as the cost of utilities, which were paid by the tenant.
Additional Coverage - There are many additional perils, which may be covered with the purchase of additional insurance. These covers may include, but are not limited to collapse, fire department changes, removal of property, damage to trees not caused by wind or ice and debris removal. Similarly, depending on your location and chosen insurance provider, you may need additional cover for events such as floods, earthquakes, tornados, hurricanes and other natural disasters.
Unfortunately, in some areas, certain perils are never included, and cannot be purchased as an addition to the policy. Natural disasters are a common exclusion. For example, if an area has received multiple hits from hurricanes, resulting in numerous, expensive and recurring claims to the insurance companies; insurers may simply choose not to cover that risk for the area, as it poses too great a financial loss for them. Similarly, they may not exclude the peril, but may inflate the premium to cover it, to such an extent that may be unaffordable for the homeowner.
It is important to all the potential losses you may face, in relation to your property, as it is probably the largest purchase you will ever make. You should not assume that certain aspects are covered under a standard policy, as cover differs, depending on the insurer and the area. Therefore, be sure to read all of your household insurance documents thoroughly, and if anything is unclear, contact your insurer or experienced agent, to explain your coverage in full.
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