Homeowners insurance has three basic types of coverages that are available on a typical policy. There is coverage for contents, liability and replacement cost with each having their own limits. The coverages on a homeowners policy are not hard to understand once they are explained.
One type of coverage that is available on a homeowners policy is for the contents of a dwelling. The limits for this coverage can be calculated in a couple different ways. Usually, the coverage for contents is the sum of all items within a dwelling. However, there are some items that are not covered by the basic contents coverage of the policy. Items that are not covered need to be scheduled or itemized on the policy with the value of each item listed. Only when items are scheduled will they be covered by the insurance policy. The coverage limits are the maximum amount the insurance company will pay on the policy in the event of a loss.
Another type of coverage on a basic homeowners insurance policy is for liability. Liability coverage is generally designed to do a couple of important things. First, it provides for medical payments in the event that someone becomes injured while on the insured’s property. Second, it provides coverage for legal expenses in the event that the insured is sued as the result of an injury or some other event. The limits of coverage can be set to whatever the insured would like to have. The standard amount of coverage usually starts at around $300,000. Liability insurance generally does not cover negligence and carelessness on the part of the insured.
One of the most important coverages on a homeowners insurance policy is the replacement cost for the dwelling. This coverage is designed to pay to to completely replace a dwelling as a result of a loss such as fire. The amount of coverage is generally based on the replacement cost value of the dwelling and not the actual appraised value of the house. This is an important distinction because not all homes are always insured for their full replacement cost value. Exclusions are another factor that can be different between insurance carriers in the United States. It depends on what the insurer thinks what is or is not an insurable risk based on their loss statistics.
Once the coverages on a policy are explained it is an easier task to decide on the appropriate policy limits to have. The policy limits are usually the maximum amount the insurer will pay out on a policy per year. The limits of coverage can usually be changed at any time but are should be looked at during each renewal.