If you own a home, it is important to understand how your home insurance policy works fully. Even among individuals who have had homeowners insurance for a while, there are often misconceptions about how exactly it works, which is why it is important to be sure you have a clear understanding of what homeowners insurance can and can't do for you.
#1: Retroactive Coverage
Some people mistakenly believe that if something bad happens to their home, like if someone breaks in and steals things or a tree falls and damages their home, they can then purchase a homeowners insurance policy and get the damage fixed.
The thing is, homeowners insurance is not designed to be retroactive. It will only cover damage that occurred on or after the start date of your policy. You can't just run out and buy a policy because your home was damaged; you need to have the policy already in place so that when your home is damaged, that damage is covered.
#2: Covered Perils
Second, many people don't understand what type of events their insurance covers. With homeowners insurance policies, you generally have two different coverage options.
The first is named perils, where there is a list of specific events or perils that your insurance will cover. They will not cover anything other than the listed perils.
The second type of coverage is open perils. With open perils, anything that happens to your home, unless it is specifically listed as not being covered, will be covered by your insurance policy. When it comes to what type of coverage you want, named perils tend to be more affordable, but open perils provide you with more wide-ranging protection.
#3: Living Costs
Third, many people don't understand that homeowners insurance is about covering more than just damage to your home and property. If you cannot live in your house because it has to be fixed due to a covered loss, your insurance will pay your temporary living costs.
They will pay for a location for you to live in and will even cover things like food and laundry expenses when you are displaced. So, if you have a fire in your home, don't stress about where you will live; your insurance will step in right away and cover you living somewhere else.
When it comes to home insurance, you need to have it in place before your home is damaged; a policy will not cover existing damage. You need to determine if you want named-peril coverage or open perils coverage. It is also important to note that living costs are covered with your homeowners policy when your house is out of commission after a covered incident.