What does your home insurance cover?

Blog posted On October 04, 2018

Earlier this month, Hurricane Florence caused an estimated $20 to $30 billion of damage to commercial and residential properties throughout North and South Carolina.  Unfortunately, an estimated 85% of residential property losses were uninsured, and less than 10% of properties in North Carolina had flood insurance.

When you purchase a home with mortgage financing, most lenders will require a homeowner’s insurance policy.  You can legally own a home outright without a homeowner’s insurance policy, but homeowner’s insurance protects you from damage from unforeseen circumstances and liability protection for any injuries that occur on your property.  MarketWatch contributor, Jacob Passey states: “most homeowners whose properties were in the path of Hurricane Florence’s torrential rains would have been better off [from an insurance perspective] if their home had been hit by a wildfire or volcanic eruption.”

Standard homeowner’s insurance policies have four major components: dwelling, additional living expenses, personal liability, and personal possessions.  Coverage can be increased through additional “riders.” 

• Dwelling covers damage to the home and attached structures. You’ll require additional insurance for detached structures like a shed. 
• Additional living expenses or ALE covers the living expenses you may incur while your home is being repaired or rebuilt.
• Personal liability protects you against lawsuits if someone is injured on your property.
• Personal possessions covers the destruction or theft of personal property. There are limits for expensive luxury items, you may need a separate policy for those. 

Homeowner’s insurance covers some weather-related disasters, but policies and deductibles vary.  Last year, when Hurricane Irma ravaged Florida, Pew Charitable Trusts found only 14% of the 3.3 million households impacted had flood insurance.  As of April 2017, the National Flood Insurance Program’s average annual policy premium was $878.  However, this annual premium can easily exceed thousands of dollars in areas prone to frequent flooding.  When a hurricane occurs, the source of the damage can become quite confusing.  With wind, rain, storm surges, and other factors all at play, it can be hard to determine what exactly caused damage to the home.

According to MarketWatch, a standard homeowner’s insurance policy, some natural disasters will always be covered, including wildfires, tornadoes, and hail storms.  Other natural disasters, like floods and earth movements, will require additional riders.  Flooding includes disasters caused by rising water from extensive rainfall, hurricane-induced storm surges, dam failure, and tsunamis.  Earth movements include earthquakes, landslides, and sinkholes.  These disasters are not covered under standard policies because of the widespread damage they cause.   

Since 1968, the United States government has provided flood insurance through the National Flood Insurance Program.  Homeowners can buy flood insurance through this policy or choose a private insurer.  Earthquakes will also require a separate policy.  In the state of California, coverage is offered through the California Earthquake Authority. 

When you’re setting up your homeowner’s insurance policy, it’s important to be aware of what coverage can help you and what coverage you may not need.  Searching your address on the Federal Emergency Management Agency (FEMA) website can show you what your risk factor is and whether or not a government program is available in your area.  Working with a knowledgeable insurance agent will help you make the right decision about what kind of coverage best protects your home. 

Sources: MarketWatch, The Mortgage Reports