What Does Homeowners Insurance Cover?

A standard homeowners insurance policy pays for you to fix or replace your home and its contents if they are damaged. This is called "full coverage." These are usually things like smoke damage or damage caused by a weather event like lightning. This is usually what people think of when they think of the damage caused by things like fire or smoke. There could also be damage that isn't covered, like when a tree falls on top of you.

That includes your heating and cooling systems, as well as your kitchen appliances, furniture, clothing, and other things. People who own homes with sheds or other buildings on them get insurance for them. They also get coverage for things like outdoor grills or fireplaces. There are also things like swing sets and walls or fences. A swimming pool or other recreational equipment may also be covered by the policy, but the more risky items may need extra liability coverage.

In addition, if you need to stay somewhere else while your home is being rebuilt, you're usually covered for living costs. As a rule, liability insurance is also included. So if people who don't live in your house get hurt when they're on your land, you'll get money for their medical bills and legal fees.

Important: It's important to know all the specifics of your plan and what you can expect in the event of a claim. Some lenders only want you to have enough homeowners insurance to pay off your mortgage. In most cases, that won't be enough to rebuild your home and replace everything in it.

It's also important to think about how much it will cost to rebuild. People who want to make changes or additions to their homes, pay more for labor or materials, or meet new zoning rules might need more insurance.

This is why you might want to think about getting replacement cost insurance for your home rather than actual cash value insurance. The first one pays for you to fix or replace your home and its contents at today's prices. A cash value policy takes into account things like how old things are, how much they've worn, and more.

Suppose a tree falls on your roof, which was last replaced 10 years ago. A replacement cost policy will pay for the roof to be replaced at today's prices for labor and materials, so you won't have to pay for it. The depreciation on an actual cash value policy will be taken out over 10 years, so it will be worthless. The same rules apply to your furnace, washing machine, and other things you own. Replacement costs more money, but experts say it's worth the extra money in the long run.

You need to know the difference between policies that pay cash value and policies that pay for replacement costs, says Lynne McChristian of the Insurance Information Institute (III). "The former pays the depreciated value, so you get less at claim time," she says. With replacement cost, you may pay 10 to 15% more for insurance, but when you file a claim, you get a lot more money.

How many homeowners insurances do you need? To figure that out, multiply the square footage of your home by the cost of building in your area per square foot. Building costs in your area average $80 per square foot for homes that are 2,200 square feet. If you want to rebuild your home and it costs $176,000 to do, that would be $176,000. In your area, you should be able to get some help from a local insurance agent to figure out how much insurance costs there. You'll figure out the costs for all of your outbuildings the same way.

Next, take a look at all your things and figure out how much they're worth. Take pictures or videos to keep a record of what happened. It's a good idea to write down where and when you bought big-ticket items on your inventory list. Record: This will not only help you figure out how much insurance you need, but it will also help you figure out what needs extra insurance.

III: Most homeowners insurance policies cover your belongings at a rate of about 50% to 70% of how much your home is insured for. Meaning that if your home is insured for $400,000, you can expect to get back somewhere between $200,000 and $280,000 for your furniture, clothes, and other things. If your inventory shows that it isn't enough for your needs, think about getting more insurance.