Many people assume their homeowners or renters insurance covers just about anything that could go wrong at home. But that’s not always the case. Policies often have limits, coverage gaps, and exclusions that could leave you responsible for certain losses.
That’s why understanding what your policy covers is so important. The right coverage can protect your finances and give you peace of mind when a pipe bursts, a storm damages your roof, or someone breaks in and steals your belongings. Knowing what homeowners and renters insurance typically covers helps ensure your policy provides the protection you expect.
What Does Homeowners Insurance Cover?
A standard homeowners’ insurance policy protects both your home and the belongings inside it from covered events.
Most policies typically include:
Dwelling coverage
Dwelling coverage protects the physical structure of your home against covered events like fire, windstorms, hail, and vandalism. It typically covers the walls, roof, floors, built-in appliances, plumbing, electrical, and any attached structures, like a garage, if they’re damaged or destroyed.
For example, if a tree limb breaks during a storm and crashes through your roof, dwelling coverage may pay to repair the damage.
Personal property coverage
Personal property coverage protects what’s inside your home, including your furniture, electronics, clothing, appliances, and other personal items. If your belongings are stolen, damaged, or destroyed by a covered event, your policy may cover the cost of repairing or replacing them.
For example, if someone breaks into your home and steals your laptop, your policy may cover the cost of a new one.
Liability protection
Liability protection provides coverage if you’re legally responsible for an accident on your property that causes injury or property damage.
For example, if someone slips and falls on your icy walkway and sues you, liability coverage may pay for medical costs and legal fees. It may also cover accidental damage to someone else’s property.
Additional living expenses (loss of use)
If you are temporarily unable to live in your home due to a covered event, loss-of-use coverage may pay for your living expenses until you can move back in. It may cover hotel, meals, and other expenses.
For example, if you can’t stay in your home while it’s being repaired after a fire, loss-of-use coverage may pay for temporary housing and other costs.
Renters Insurance Coverage Explained
Renters insurance provides important protection for your personal belongings and certain risks you may face while renting.
Here’s what insurance covers in an apartment or rental home:
Personal property coverage
Personal property coverage protects your belongings if they are stolen, damaged, or destroyed in a covered event. It typically covers furniture, electronics, clothing, and other personal items. A landlord’s insurance policy usually only covers the building itself, not the items inside, which is why this coverage is so important. If something happens, replacing your belongings would be your responsibility.
Liability coverage
Renters insurance doesn’t just protect your belongings. It also protects you if someone is injured in your rental and you are responsible. It may cover their medical bills and legal fees if they sue. It can also cover accidental damage to the property, like if you accidentally overflow the bathtub and water damages the flooring.
Additional living expenses
If you temporarily can’t live in your rental due to a covered event, additional living expenses coverage may pay for temporary housing. It may cover hotel, meals, and other expenses until you can return home.
What Insurance Usually Does Not Cover
Homeowners and renters insurance don’t cover every type of damage or loss. Understanding what’s excluded can help you avoid surprises and identify any additional coverage you may need.
Policies usually don’t cover:
- Flood and earthquake damage: If you live in an area that’s prone to these risks, you’ll need separate flood and earthquake policies.
- Normal wear and tear: Insurance covers sudden, unexpected losses, not maintenance problems that develop gradually over time.
- High-value items beyond coverage limits: Policies typically have coverage limits for personal property. Items like jewelry, fine art, and collectibles may exceed those limits.
- Intentional damage or neglect: Intentional damage is never covered. Damage that occurs because a home wasn’t properly maintained is also excluded.
If you need more protection, you may be able to add endorsements or riders to your policy for an additional premium. These add-ons can increase coverage limits or protect risks that a standard policy may not include. For larger coverage gaps, an additional policy may be needed.
Why Insurance Coverage Matters
Without insurance, the cost to repair your home or replace your belongings could be significant. Fire damage or water from a burst pipe could easily result in tens of thousands of dollars in repairs. Replacing your furniture, electronics, clothing, and personal items could cost thousands more. A single incident could drain your savings or even force you into bankruptcy.
Insurance provides an important safety net that protects your savings and financial stability. Instead of paying out of pocket when something happens, insurance helps cover repairs and losses up to your policy limits. This protection allows you to recover and rebuild without wiping out the savings you’ve worked so hard to build.
Many people think nothing serious will ever happen, but problems can arise at any time. For example, a small kitchen fire could damage cabinets, walls, appliances, and the flooring from smoke and heat, resulting in thousands of dollars in unexpected repairs. With insurance, these costs may be covered.
Do I Need Renters Insurance?
A landlord’s insurance policy only covers the building itself, not the personal belongings inside. That’s why renters insurance is essential. It isn’t just a good idea if you have expensive things. The total value of your belongings may be more than you realize, and replacing them could be very costly.
Renters insurance also provides valuable liability protection. If someone is injured in your apartment or rental home and sues, your coverage may help pay for medical expenses, legal fees, and a settlement or judgment.
If you are forced to temporarily stay at a hotel because of a fire, burst pipe, or another covered event, renters insurance may cover your living expenses until repairs are completed and you can return home. The cost of an extended stay could easily reach several thousand dollars, which you would have to pay out of pocket without insurance.
Renters insurance may not be optional. Many landlords and property management companies now require that you carry it. It may be included in the lease agreement, and some landlords ask for proof of coverage before they will give you the keys.
The good news about renters insurance is that it’s very affordable. Most policies cost between $15 and $30 per month for personal property, liability, and loss-of-use coverage. For just a little more than the average streaming subscription, you can protect your belongings and your finances if something unexpected happens.
Understanding Coverage Limits and Deductibles
When you purchase a homeowners or renters insurance policy, you can choose different levels of coverage. Typically, the higher the coverage limit, the higher your monthly premium will be.
Your coverage limit is the maximum amount your insurer will pay for a covered loss. For example, if your personal property limit is $40,000 and a fire destroys $55,000 worth of belongings, you’ll be responsible for the remaining $15,000. Although you may be tempted to choose a lower limit to reduce your premium, it could leave you underinsured if something unexpected happens.
The deductible you select also affects your claims and premiums. Your deductible is the amount you agree to pay out of pocket before insurance kicks in. For example, if you have a $1,000 deductible and a burst pipe destroys $5,000 worth of electronics, you’ll pay $1,000 for the damage, and your insurer will cover the remaining $4,000. A higher deductible usually lowers your premium, while a lower deductible increases it.
So, how much coverage should you get? Before purchasing a policy, estimate the value of your belongings. It can also help to add a cushion to account for future purchases. Although you’ll likely pay more for higher coverage limits, it may be worth it to ensure you have enough protection to fully replace everything after a major loss.
Choosing the Right Insurance Policy
After you’ve estimated the value of your belongings, you’ll need to assess your risks to choose the right insurance policy for your needs. Does the property have older plumbing or frequent maintenance issues? Maybe you live in a flood-prone area or in an earthquake-prone region. If so, you may need additional coverage beyond what a standard homeowners or renters policy covers.
Once you have an idea of what you need, talk to your insurance provider. Asking the right questions can help you better understand your options:
- What specifically is covered?
- What is excluded?
- Does the policy cover the full replacement value, or does it factor in depreciation?
- What does the liability coverage include?
- Are there discounts available for bundling policies?
- What additional coverage do you recommend?
After obtaining a policy, be sure to review it annually to ensure it still meets your needs. A good time to do this is right before it renews. A major purchase, a new roommate, or a move to a different property could change your coverage needs.
Find the Right Coverage Today
Homeowners and renters insurance can keep a bad event from wiping out your savings. It can also help you recover and get back to normal. Whether you’re a renter or homeowner, insurance is an important safety net that protects your finances and gives you peace of mind when the unexpected happens.
At Great Lakes Credit Union, we’re committed to helping our members protect their assets. Click the link below to explore our affordable insurance options and find the right coverage for your home and belongings.
The information in this post is for educational and informational purposes only and does not constitute investment or financial advice. You should consult a licensed financial advisor before investing in any financial product or service.
The insurance offered is not a deposit. It is not federally insured, sold or guaranteed by your credit union.
