Understanding a home insurance policy can be a challenging, frustrating task. With the amount of jargon and legalese contained in the typical home insurance policy, many homeowners simply give up trying to understand the details. Unfortunately, waiting until disaster strikes may have significant financial repercussions without a clear understanding of a policy. In light of this, consumers should educate themselves on the particulars of their home insurance policy.

The Dwelling

In the world of home insurance policies, the dwelling is the term used for the home. Note that any attached buildings such as breezeways or garages are generally considered separate from the home. In determining the amount of insurance necessary for the dwelling aspect of a policy, begin with the actual replacement cost of the home. Note that this is not the purchase price of the home, but rather, the total cost of re-building the home. In addition, as it relates to renovations or home improvements, be sure to document any changes and submit copies to the insurance agency.


Separate from the dwelling is the replacement cost of any personal possessions. Policies that offer to reimburse the cash value or market value of items will only reimburse the current value of belongings. For example, a living room set that was originally purchased for six thousand dollars may now be worth only one thousand dollars at the time of the incident. As a result, look for a home insurance policy that offers reimbursement for the replacement cost instead. In addition, any special antique or jewelry collections may not be covered. Consider obtaining a separate policy to cover expensive collections or heirlooms.


The majority of home insurance policies include coverage for buildings in addition to the dwelling, known as outbuildings. However, outbuildings are generally considered under a different coverage amount than the dwelling. In light of this, ensure coverage is sufficient for the actual replacement cost of the building, rather than the current value. In addition, insurance companies consider garages, barns, sheds, and workshops as outbuildings. Just as common sense steps are taken to protect belongings in the home, it is often advantageous to be aware of this information to obtain reimbursement for stolen items.

What is Not Covered?

Damage caused by natural disasters, such as earthquakes, floods and mold are not covered by the typical home insurance policy. As a result, there are separate policies available to address these insurance needs and are strongly recommended for those living in high-risk zones. Home business owners will not be reimbursed for computers, equipment, and stock from the basic home insurance policy. Thus, home business owners that have made a significant investment in their equipment should consider purchasing small business insurance. In addition, home insurance companies do not provide reimbursement for problems that are a direct result of neglect, such as termite damage, water damage resulting from leaky pipes, or damage caused from a tree that should have been trimmed.

With some time and research, even the most inexperienced homeowner can understand the details of their home insurance policy. In preparation for a natural disaster, theft, or fire, it is necessary to ensure that these incidents do not also lead to financial disaster. As in most instances in life, preparation and education is the key to relatively stress-free living.

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