When you purchase homeowners insurance, you’re buying protection for damage or loss of both your real property and personal property. You’re also buying liability coverage for injury or damages caused to third parties that are caused by you or a member of your family.
Homeowners insurance will ordinarily cover perils like fire, wind and lightning. If you have a mortgage, your lender will require you to protect the property with home insurance, but be careful. Make sure you cover both your interests and the lender’s interests. If you don’t cover your interests, you’re personally uninsured. Also note that you’ll probably have to get special coverage for floods and earthquakes as those are usually excluded from your policy.
The terms of your policy provide that your insurer will pay to repair or rebuild your home if it’s damaged or destroyed by a covered peril. Make sure you have sufficient coverage to rebuild if necessary.
Personal property coverage
Should a covered peril cause personal property in your home to be damaged or destroyed, your personal property coverage will reimburse you for those items. These items ordinarily include furniture, clothes, appliances and electronics. Be aware of the fact that special endorsements might be needed to cover certain high-value items.
Loss of use coverage
If a covered peril makes your home uninhabitable, loss of use coverage provides a per diem allowance up to a specified amount for reasonable housing and living expenses during the interim when your home is being repaired or rebuilt. Note that most loss of use coverage only contributes to those additional expenses. It doesn’t pay for all of the expenses.