How does homeowner's insurance pay for property damage to my home in the event of a fire, theft, or other disaster?
UPDATED: February 5, 2020
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There are a variety of coverage options available to you when purchasing homeowner's insurance. These options are designed to help you pay for damage to your home, or the things in your home, in the event of fire, theft, or other type of disaster. Homeowners' insurance can also help pay for injuries suffered by other people on your property.
There is coverage for your home and its contents (contents coverage is usually 10% of the value of the home) against loss from fire, theft and other perils (or from any cause of damage under an ""all-risk"" policy, unless the cause is specifically excluded). In addition, there is liability coverage to protect you in case someone is injured on your property. Many policies also provide coverage for your property if it is lost or stolen, even if the loss occurs away from the home (for example, if your camera is stolen while you are on vacation, your homeowner's insurance may cover this loss). Most homeowner's insurance policies exclude losses due to floods and earthquakes although riders or separate coverage for these perils may be obtained.
In determining what liability limits you should purchase, you need to consider the amount of exposure that you have. As a general rule, the more property and wealth that you have, the greater your exposure is and the need for higher liability limits for protection against claims from third parties. Often, liability limits are set as a combination of numbers, such as 15/30, which means coverage of loss of up to $15,000 per person and up to $30,000 for all injuries which occur in a single accident. This is referred to as the minimum liability limit. Often the minimum liability limit is inadequate to protect all of your property and wealth. Increased limits, such as 100/300 or 300/500 are very common and can be purchased at modest additional cost to you. There is no minimum liability limit for a homeowner's insurance policy, although most lenders require you to carry insurance at least equal to the amount of your outstanding mortgage. If you have suffered damage to your home or belongings and your insurance company won't pay, you should seek the advice of an experienced insurance lawyer right away. You may be entitled to coverage for your losses, but you won't know unless you ask.