2. Key homeowner insurance terminology

The following is a list of terms you should know before you purchase a policy or while you have your policy.

• Insurance policy – the contract that states what will and will not be covered when and if anything happens to or in your home. Earthquakes, floods, and “acts of God” are typically not covered. You would have to purchase a “rider” for these.
• Premium – the payment the insured makes to the insurance company
• Deductible – the amount you need to pay before the insurance kicks in. The higher the deductible, the lower the premium.
• Payouts – there are two types of payouts: actual cash value and replacement cost coverage.
  • Actual cash value pays an amount equal to the current cost to replace your items minus the depreciated value.
  • Replacement cost coverage pays you the amount it would cost to replace your lost or damaged property. You only get the money if you replace the items. There is also usually a limit on how much money you receive, and the premiums tend to be higher.
• Rider – a provision in an insurance policy that alters the policy’s term, coverage, or conditions.
  • Ordinance-and-law coverage – this is a “rider” that covers the cost of bringing your home into compliance with current building codes. You will need this coverage if your home is more than a few years old.
• Inflation guard – a coverage that annually increases your premium at the rate of local building-cost inflation.
• Perpetual insurance – home insurance without a fixed term.

3. What is covered by homeowners insurance

The following is a list of items that is covered by your homeowners insurance. You may be surprised by the things covered by your policy as well as the things not covered by your policy.

• The structure of the building
• Family possessions and personal property
• Compensation for liability claims and medical expenses
  • Some renters insurance protects you against a lawsuit if someone or their property is damaged on your apartment's premises.
  • Medical payments to guests – some policies cover the medical bills up to a limit of anyone, except you or anyone else who lives in the apartment, who is injured in your apartment.
• Displacement – your homeowners policy pays for your living expenses if you’re displaced. Some policies cover increased living expenses if you must live elsewhere due to a loss. It also covers replacement of buildings such as garages and sheds and limited medical coverage for someone injured on your property.
• Lost property while traveling – some renters insurance policies cover your property even when you are traveling, should the airline lose your luggage.
• The value of the land our home is on is not covered by the insurance policy. If the value of the land depreciates, you will not be insured against that loss.
• An ordinary homeowners policy provides minimal coverage for antiques, collectibles, furs, silver, jewels, cameras, computers, musical instruments, and firearms. For anything else that is valuable, buy a rider.
• Your homeowners policy protects you from lawsuits for accidents that happen on your property. You’re also protected if your dog bites someone and that person decides to file a lawsuit against you.
• A basic home policy may not promise to fully replace your home, if your home ever needs to be entirely replaced.

4. Facts you need to know

The following are facts and other particulars you should keep in mind before and while purchasing homeowners insurance.

• Your home’s value. A local builder can provide the best estimate for your home.
• Prices vary by company—companies have different prices for the same coverage.
• Your insurer may not have your best interests in mind. Your insurer’s job is to restore you financially. Your job is to make sure your fairly compensated for your losses.
• Business property worth more than $2,500 is not covered by your homeowners policy. Buy a separate rider to cover the gap. Business liability coverage also needs to be purchased separately.
• Mortgage companies require borrows to have enough insurance to at least cover their loan. This is to protect the bank in case your home is destroyed.

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