Understanding Insurance: What’s Covered in My Homeowner’s Policy?

Categories: Resources & Tips

At LGI Homes, we strive to help our residents make smart decisions regarding their homes – afterall, your house is your largest investment! Homeowner’s insurance is essential for protecting your investment, and is often required when purchasing a house using a loan. When it comes to homeowner’s insurance, no two policies are created equal. Even “standard” policies tend to vary it what they cover. Today, we’re here to help you break down and understand your homeowner’s insurance policy so you know what’s covered – and what isn’t.

Understanding Homeowner's Insurance

Get to know how homeowner’s insurance works and what’s covered in your policy before signing the dotted line.

Standard Coverage – Standard homeowner’s coverage, also known as HO-3, protects your home against various perils, damage and provides a specified amount of personal liability coverage. Generally speaking, lenders require that your policy is enough to cover at least 80% of your home’s entire value. You can opt for less expensive policies such as an HO-1 or HO-2 policy, but these policies cover even fewer risks than an HO-3 policy.

Hazards and Damages – Hazards and damages typically covered in a standard HO-3 policy include fires, lightning strikes, tornadoes and hurricanes. HO-3 also protects you in the event you experience a loss due to theft, riots or vandalism, as well as damage caused by frozen plumbing, heating and air conditioning systems. In addition to covering the structure of your home, homeowner’s insurance is designed to protect your assets within your house. This includes jewelry, clothing, furnishings and other valuables. Most policies cover the actual cash value of the items, minus the depreciation. Other policies cover the replacement cost for the items. When signing up for a homeowner’s insurance policy, it’s essential that you familiarize yourself with how the company plans to reimburse or cover the cost of your assets and not just the structure of your house. After all, it’s the things you fill your house with that turn it into a home.

Personal Liability – In addition to protecting the structure and assets of your home, homeowner’s insurance is designed to protect you in the event a lawsuit arises. If someone is injured on your property or you damage someone elses, your homeowner’s insurance will cover the costs fix it. For example, your policy will cover the medical expenses if someone falls down your stairs or trips on your patio and requires treatment. However, this does not include auto or business-related exclusions.

Common Exclusions – The two most common disasters that aren’t covered by standard homeowner’s insurance are floods and earthquakes. Sadly, these are two of the disasters that have the most potential to wipe out your entire home. If you’re worried about incurring losses as the result of a flood or an earthquake, you’ll need to take out a second, supplementary policy. Known as an “umbrella policy,” this will ensure your home is fully covered and you’re prepared for anything. Additionally, homeowner’s insurance doesn’t cover routine maintenance costs or repairs. If your sink breaks or your refrigerator stops working, you won’t be able to file a claim for reimbursement with your company, and will have to tackle the replacement or repair costs on your own and out of pocket.

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