Homeowners secure a type of property insurance known as homeowners insurance to help cover losses or damages to their physical property — and the valuable assets inside the home. But many homeowners don’t adequately understand the various parts of their policy.

No two homeowners insurance policies are the same. From deductibles to coverage limits — and other important elements in between — there are many things to consider. Read on to understand the various components of a homeowners insurance policy. Understanding what’s covered and for how much can go a long way in protecting your long-term financial health.

Deductibles

When a homeowners insurance claim is made, the policyholder needs to make a deductible or out-of-pocket payment before the insurance company pays the remaining costs. When designing your policy, you and your insurance agent will select a deductible amount that works for you. It’s important to consider what you can sensibly afford in the event of an unexpected claim. While a lower deductible offers more affordability in the event a claim needs to be made, a higher deductible results in lower annual premiums.

Types of Homeowners Insurance Deductibles

Flat Deductible

This type of deductible requires that the policyholder pay a fixed amount for every homeowner’s insurance claim that is filed. For example, if the flat deductible rate is $500, and you and your family sustain $2,500 in losses after a home burglary, you will pay $500 out-of-pocket while the insurance company will cover the remaining $2,000.

Percentage Deductible

Policyholders may also opt for a percentage deductible, which is calculated by paying a percentage of the home’s insured value (typically 0.5% to 10%). This type of deductible is common for homeowners who are vulnerable to costly claims related to wind, hail, and hurricanes.

Split or Hybrid Deductible

Another option is to select a split or hybrid deductible, which allows the insured to pay a flat deductible for common damages (such as water or smoke damage) and a percentage deductible in the event of more extreme damage (such as tornado or hurricane damage).

Percentage Deductible

Policyholders may also opt for a percentage deductible, which is calculated by paying a percentage of the home’s insured value (typically 0.5% to 10%). This type of deductible is common for homeowners who are vulnerable to costly claims related to wind, hail, and hurricanes.

Coverage Limits

Homeowners insurance generally includes different coverage limits, or maximum amounts that the insurer will cover for a claim. In choosing the right coverage for your home, it’s important to understand your legal and financial obligation to ensure your premises are safe for dwellers and visitors alike.

Types of Homeowners Insurance Coverage Limits

Dwelling

When your property is physically damaged, dwelling coverage kicks in to help cover the damage. If you find yourself needing to rebuild your home due to a storm or fire, your dwelling coverage needs to adequately cover this entire cost.

Types of Dwelling Coverage
  • Basic or Actual Cash Value: Taking depreciation into account, the basic type of dwelling insurance policy will reimburse rebuilding costs based on the actual cash value of the physical property.
  • Extended Replacement Cost: Some insurance companies offer extended replacement cost, which offers coverage at a set percentage above the dwelling limit.
  • Guaranteed Replacement Cost: Offered by select high-value insurance carriers, this coverage offers guaranteed replacement of your dwelling in the event of a major claim.
Liability

This part of your policy protects your financial and personal assets in the event a bodily injury or property damage claim is filed. While coverage limits vary by state and insurance company, they tend to fall within a range of $100,000 to $1,000,000.

Sewer Backup

It can be very costly to pay for sewer damage out-of-pocket. Sewer backup endorsements commonly come with a coverage limit of $5,000 to $100,000 (or more, up to the dwelling limit, for higher value homes with custom or extensive finished basements). If you have a finished basement, it is very important to check this coverage limit, as a sewer backup will be even more costly.

Law or Ordinance

With local laws and ordinances constantly changing, parts of your home often may not be up to code. Law or ordinance coverage will help cover the cost to rebuild parts of a damaged home in accordance with the most up-to-date building code, which may end up being more expensive.

Equipment Breakdown

This important coverage will provide additional protection for home appliances and heating and cooling systems in the event that electrical or mechanical equipment breaks down. For example, if your power goes out and one of your appliances breaks, equipment breakdown coverage will help cover the replacement or repair of that appliance.

Service Line

Service line coverage will provide protection for costs related to the damage of service lines on your property, such as power lines, water and sewer pipes, cable and phone lines, and more. Homeowners are often surprised to discover that they are responsible for the cost to repair these lines, rather than the service provider.

Determining the appropriate coverage limits for your property, belongings, and liabilities can be a difficult task. Discussing your personal situation with your trusted insurance agent goes a long way in providing peace of mind that you’ll be adequately taken care of in an unforeseen situation.

Perils

When designing your homeowner’s insurance policy, it’s also important to consider your risk profile as it’s associated with different threats or perils. To protect your home and assets, you must understand the different levels of coverage based on these threats.

Types of Homeowners Insurance Perils

Basic Perils

This type of perils coverage will only protect you from claims associated with a limited set of perils. In other words, the perils specifically mentioned in the policy are covered, while any other type of claim is not.

Typical Coverage: Fire, Smoke, Lightning, Explosion, Vandalism

Broad Perils

This type of perils offers coverage for a variety of perils, offering more coverage than Basic Perils. That said, if the peril is not specifically mentioned in the policy, a claim for that type of damage will not be covered.

Typical Coverage: Burglary, Falling Objects, Frozen Plumbing, Accidental Water Damage, Artificially Generated Electricity

Special Perils

Special perils offer the highest level of coverage for homeowners. This type of coverage covers all perils, except those that are specifically excluded from the policy.

Typical Exclusions: Earthquake, Flood, Power Failure, Neglect, War, Intentional Acts

We’re Here to Help

There are many different elements of homeowners insurance to consider in order to ensure an adequate level of protection. At Doeren Mayhew Insurance Group, our insurance advisors are experienced in asking the right questions to determine your unique coverage needs. Whether you have a high-value home you want to make sure is protected, or you have unique business interests that need to be considered, our insurance agents are available to discuss your options and secure the appropriate coverage. Contact us to get started today!