The Nuts & Bolts of Homeowners Insurance

It may seem ominous, but your homeowner's policy consists for four very simple items. It's important to know the ins and outs of your Dwelling Coverage, Contents Coverage, Liability Coverage and Additional Living Expense Coverage.

April 1, 2010

A standard homeowners insurance policy includes four essential types of coverage, they include:

Dwelling Coverage (coverage to protect the structure of your home)
Contents Coverage (coverage to protect your personal belongings)
Liability Coverage (to protect you in the event of a lawsuit)
Additional Living Expenses (assistance if you are unable to live in your home as a result of a total loss).

1. Dwelling Coverage

This part of your policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disaster listed in your policy. It will not pay for damage caused by a flood, earthquake or routine wear and tear. When purchasing coverage for the structure of your home, it is important to buy enough to rebuild your home.

2. Contents Coverage

Your furniture, clothes, sports equipment and other personal items are covered if they are stolen or destroyed by fire, hurricane or other insured disaster. Most companies provide coverage for 50% to 70% of the amount of insurance you have on the structure of your home. So if you have $100,000 worth of insurance on the structure of your home, you would have between $50,000 to $70,000 worth of coverage for your belongings. The best way to determine if this is enough coverage is to conduct a home inventory.

Expensive items like jewelry, furs and silverware are covered, but there are usually dollar limits if they are stolen. Generally, you are covered for between $1,000 to $2,000 for all of your jewelry and furs. To insure these items to their full value, purchase a special personal property endorsement or floater and insure the item for its appraised value.

3. Liability Coverage

Liability covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by your pets.

The liability portion of your policy pays for both the cost of defending you in court and any court awards—up to the limit of your policy.

4. Additional Living Expenses

This pays the additional costs of living away from home if you can't live there due to damage from a fire, storm or other insured disaster. It covers hotel bills, restaurant meals and other living expenses incurred while your home is being rebuilt. Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20% of the insurance on your house. You can increase this coverage, however, for an additional premium. If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.