Home insurance — what do you need to know?

What is home insurance?

No matter whether you are rich or poor, you need somewhere to call home. This can be an expensive penthouse or an apartment you rent, a freehold property with its own swimming pool or a trailer in a park. If disaster strikes, everyone is the same. Contents may be lost or, in the worst cases, your home may be lost.

What else is included?

One of the worst financial threats anyone can face is where a visitor has an accident and is injured while in your home. It can be a relative, friend or a plumber who has come in to repair a leaking faucet. There’s a general rule of law that protects the person injured. If there are medical expenses or pay is lost because the injured person cannot go to work, all these losses can be recovered from the person occupying the home. The protection is called liability insurance, i.e. it pays out when a third party claims from you.

Are all disasters covered?

In 2011, we see one of the worst years for tornadoes and flooding since records began. The only way to find out precisely what threats are included in the policies, is to read them. The insurers differ in the extent of the cover they offer. As a general rule, routine problems caused by wind and rain are covered but there are always exceptions. You will usually have to buy separate cover for the more severe threats.

What are the standard exceptions?

The majority of home insurance policies exclude liability for flooding and earthquakes. There’s a federal insurance plan to help people particularly at risk of floods, and at-risk states offer local insurance cover against earthquake damage. These plans offer a default cover when private insurers refuse to underwrite the risks.

What about fair wear and tear?

The general rule is you must expect your home and its contents to wear and need repair or replacement. So, if your children accidentally damage a sofa, this will be covered. But if it’s simply too old to use, this is not.

What is paid out?

You recover the cost of repairing or, in the worst case, rebuilding your home. But you are not allowed to make a profit. The builders should use materials of the same quality — so no gold-plating on the replacement faucets. Similarly, the standard policy pays for secondhand furniture to replace what you have lost.