What Types Of Policies Are Available?

While the policy may vary depending on the agency you choose, you can get two types of coverages: Replacement Cost or Actual Cash Value.

Replacement Cost

With a Replacement Cost Policy, damaged items are replaced with similar products regardless of the current market price, without being affected by depreciation.

Actual Cash Value

With an Actual Cash Value Policy or ACV, depreciation is subtracted from the cost of the damaged items. Often this leads to a homeowner not receiving enough coverage to replace all the damaged items in their home.

Some first-time homeowners will choose an Actual Cash Value Policy because the premiums are lower than a Replacement Cost Policy. Although they can save more on the front end, if they ever have to use their insurance to cover damage; it may be disappointing to see they’re not able to restore their home to its original condition.

What Does Homeowners Insurance Cover? 

There are some general areas most homeowners insurance policies cover. These include:

    ● Outdoor structures on the property, such as barns, garages, sheds, etc.

    ● Reimbursement of some medical bills for a person who is injured or has an accident on the property

    ● The homes entire structure, from the foundation to the walls and roof

    ● Living expense assistance for those displaced due to damage. Eligible items can include reimbursement for hotels, food, etc.

Damage that is covered can include fire and smoke, storms including hurricanes, and vandalism/ theft.

What Does Homeowners Insurance Not Cover?

While you have to refer to your specific policy, there are general areas that most homeowner’s policies will not cover. Often, the owner is unaware of the extent of damage that their policy doesn’t cover, so it’s essential to read through the coverage you have purchased. Most ineligible damages include:

  ● Floods - It is common for a house not in a zone known for flooding to encounter a storm that causes flash floods. Typically a homeowners policy excludes flooding, and there are separate policies an owner can buy that specifically cover floods.

  ● Sewage/ septic tank backups - The homeowners’ responsibility is to maintain their sewers and septic tanks.

  ● Earthquakes - Most policies do not cover earthquake damage.

  ● Sinkholes - Although rare, it will most likely not have coverage for damages if a sinkhole damages your home.

  ● Termite/ rodent - It is the homeowner’s responsibility to provide pest control to their own home, and if they fail to do so, the damages are not covered.

  ● Rot/ rust/ mold - Rot, rust, and mold are all considered home upkeep and are the homeowner’s job to remove.

  ● Spoiled food from power outages - Food that has spoiled from power outages is not covered.

  ● Regular wear and tear - Normal ageing of the home is not coverable damage.

Who Needs Homeowners Insurance?

If you are buying a home and taking out a mortgage, you must have homeowners insurance. Lending companies will not approve a loan if there is no insurance on the property. They do this for two reasons, to protect them and to protect you. If you do not have a mortgage but still own a home, you should make sure you have a good homeowners policy to protect your investment. Even if you have a home warranty, insurance is essential, as warranties do not cover all the damages that could arise.

Homeowners insurance offers financial protection in the chance your home is damaged or burglarised. Whether you choose a Replacement Cost or Actual Cash Value Policy, make sure you have some sort of coverage on your home.