how homeowners insurance works
a homeowners insurance policy usually covers four kinds of incidents on the insured property interior damage exterior damage loss or damage of personal assets belongings and injury that occurs while on the property when a claim is made on any of these incidents the homeowner will typically be required to pay a deductible 1policy providers offer riders that increase coverage for specific events cover high value property and can reduce deductible amounts these adders cost an additional premium the insurance provider will usually depreciate the value of the covered property based on its age use condition and useful life the insurer deducts the depreciation value from the replacement cost to arrive at the actual cash value acv that they will return to the insured you can get a recoverable depreciation clause added to your contract that will pay you the depreciation value along with the replacement cost for example say a claim is made to an insurer for interior water damage that has occurred in a home a claims adjuster estimates the cost to bring the property back to livable conditions to be 10 000 if the claim is approved the homeowner is informed of the amount of their deductible say 4 000 according to the policy agreement in this case the insurance company will issue a payment for the excess cost of 6 000 the higher the deductible on an insurance contract the lower the monthly or annual premium on a homeowners insurance policy 2every homeowner s insurance policy has a liability limit that determines the amount of coverage you have the standard limits are usually 100 000 but you can often choose a higher limit if a claim is made the liability limit stipulates the percentage of the coverage amount that would go toward replacing or repairing damage to the property structures personal belongings and costs to live somewhere else while the property is worked on acts of war or acts of god such as earthquakes or floods are typically excluded from standard homeowners insurance policies if you live in an area prone to these natural disasters you may need special coverage to insure your property against floods or earthquakes most basic homeowners insurance policies cover events such as hurricanes and tornadoes 3homeowners insurance and mortgages