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What Does a Home Insurance Policy Cover?

You already pay car insurance and health insurance, and you may have purchased a life insurance policy. You feel a little tapped out. But you also want to consider your homeowner's insurance options. Sometimes, you have no choice—many lenders condition their mortgages on an active homeowner's policy. Homeowner's property insurance policies typically address the following covered losses:

  • Property damage from fire, including for both structures and personal belongings
  • Certain natural disasters
  • Damage caused by others, such as vandalism

In some cases, homeowners insurance covers lawsuits arising from personal liabilities that homeowners assume. For example, a homeowners insurance policy may cover you if your neighbor gets hurt on your property and sues you. But remember that standard homeowners insurance policies won't meet all possible coverage needs. A standard policy contains many exclusions. You may separate policies (with additional insurance costs) for the following types of homeowners coverage:

  • Flood insurance programs (especially for water damage from flooding and windstorms)
  • Mobile home insurance
  • Renters insurance
  • Real estate earthquake insurance
  • Special types of replacement cost coverage for expensive personal property, like collectible cards or watches

In many ways, a home insurance policy is there for unlikely events. Additional coverage and coverage limits depend on your particular situation and type of property. An insurance agent may prepare different insurance quotes, depending on your property coverage requirements. In any event, it helps to know what a home insurance policy generally covers before you purchase an insurance product.

Liability Coverage

Homeowners insurance policies cover legal liability if anyone suffers a bodily injury while on the insured property. Certain actions of the policyholder that happen away from the insured property may also be covered. Even if a house is under construction and has no contents to be protected, the homeowner should obtain liability insurance. This can help to protect against the claims of workers and even trespassers.

When a homeowner purchases liability insurance, the insurance company must provide a defense in the event of a lawsuit. The insurance company selects the lawyer and must approve the payment of all legal fees. That includes other expenses of the lawsuit. But the lawyer represents the policyholder, even though they're hired by the insurance company.

Under most types of liability insurance policies, the insurance company has the contractual right to settle or defend the case as it sees fit. The homeowner has an opportunity to express an opinion. But the company typically has no obligation to obtain the policyholder's consent or approval. The insurance company will typically try to settle claims for a payout below the policy limits purchased by the insured. For example, a person injured inside someone's home may sue for their medical expenses. The homeowner may have up to $50,000 in coverage for third-party medical payment claims. The insurance company will have an incentive to settle below this amount to minimize its maximum exposure of $50,000.

Suits Against Homeowners: What Is Covered?

A suit against a homeowner may involve several different claims:

  • Some may be covered by the liability insurance policy, such as reimbursement for the actual cash value of damaged property
  • Others may not be covered, such as additional living expenses arising from an earthquake that was not part of the policy

If necessary, the insurance company must provide a defense for any claim which could be covered. But the company may not be obligated to pay the damages for certain types of claims. Since liability policies typically do not provide coverage for intentional acts, there may be a question of whether the policyholder acted intentionally. For example, a homeowner who maliciously injures their guest with a baseball bat probably won't be covered. But coverage is likely if their guest trips and falls by accident.

Negligent or accidental claims are generally covered. But a complaint filed in court may allege both negligence and intentional actions. While the former involves carelessness or accidental behavior, the latter involves a bad act done for a wrongful purpose. In this situation, the insurance company may send the homeowner a Reservation of Rights letter to clarify the types of coverage included. The letter will contain a notice that the insurance company is:

  1. Paying for the defense for the claim, but
  2. Not agreeing that it's required to pay for any and all losses under the terms of the policy

Finally, keep in mind that homeowners insurance, like all other types of coverage, only covers damage beyond your deductible. A deductible is a fixed, minimum amount of money you must pay out of pocket before your coverage kicks in. For example, if you have a $1000 deductible, your $5,000 claim will only result in a $4,000 payout.

Get a Legal Evaluation of Your Home Insurance Concerns

You may not need every single bell and whistle available in a home insurance policy. But not having adequate insurance can come back and bite you. You'll want just enough to protect you and your family while providing peace of mind. That way, you can enjoy your home without the stress of looming accidents. Be proactive if you have additional questions about home insurance coverage or a pressing legal need. Consult with a real estate attorney or insurance lawyer today.

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