Property insurance is one of the most important types of insurance you will ever purchase. It protects what is likely to be your life’s biggest investment: a home filled with keepsakes and personal belongings. This insurance is in place to help you recover expenses and costs if an accident damages your home and deprives you from using it.
When you’re deciding on property insurance, or evaluating home insurance you already have, you need to make sure that it’s enough to cover your belongings. In order to do that, you need to ask: what does property insurance usually cover and what, if anything, is missing from your policy?
Structure / Dwelling
Structure / Dwelling coverage handles the damage done directly to your home or to other structures on your property that are covered by the policy. Structure coverage pays for the costs to repair or replace damaged material like walls, roofing, flooring, electrical, windows and doors, fixtures, etc.
There are a few common misconceptions about this type of coverage. Here’s what it DOES NOT cover:
- Personal contents such as furniture;
- Property taxes; or
- Mortgage payments during the repairs.
Structure coverage is not related to the market value of your home. Instead it is based on quotes from contractors regarding how much it would cost to rebuild the structure as it was, or to complete repair work.
Contents / Personal Belongings
When your personal belongings are damaged or stolen, you should check your property insurance policy for information regarding Contents or Personal Belongings coverage. Compensation may be subject to monetary coverage limits or even to time limits and deadlines.
Generally, this coverage is meant to provide funds to compensate for the loss of belongings including:
- Clothing; and
- Wet, dry, and frozen food.
The most likely areas where coverage limits might be exceeded are artwork, jewelry, or even electronics. You may need special coverage for high-value items.
Types of Loss
Standard “perils” or types of loss considered within property insurance coverages are:
- Fire and smoke damage;
- Water damage;
- Theft of personal belongings; and
- Extreme weather events like lightning, windstorms, and hail.
There are also risks (or perils) that are NOT usually covered under basic property insurance. You can usually acquire coverage for these risks with additional policies or through an open perils policy, although in some regions it may not be available because the peril has not been common enough to introduce such coverage (for example overland flooding coverage may not be available in an arid, high-elevation area).
Common risks you may need extra coverage for include:
- Flood damage (i.e., overland flooding);
- Sewer backups; or
Open Perils vs. Named Perils
Policies that use “named perils” will list all of the types of loss covered by the policy. By comparison, open perils coverage will only list those types of loss excluded from coverage. Perils typically excluded from this type of policy are things like war, market loss, wear and tear, pollution, and government seizure.
In some policies, open perils coverage may apply to Structure / Dwelling insurance, but Contents are limited to named perils.
Contents coverage may also be subject to special limits by property-type in all cases of loss except named perils. For example, loss of jewelry may be limited to $5,000 in coverage UNLESS it was lost as a result of a fire.
It pays to know more about your property insurance. Under-insurance and/or inappropriate insurance is all too common. Make sure your policy covers everything you need it to so that there are no unwelcome surprises if the worst should happen.