After a major loss, the road to recovery can feel overwhelming. Most people know home insurance pays to rebuild the house and replace belongings, but it can pay for much more. Here are the ways, including some surprising ones, that home insurance helps you get back on your feet after disaster.
Rebuilding Your Home
Not much surprise here: home insurance helps pay to repair or rebuild your home after an insured peril. But there are a few important details that are less commonly known.
For instance, coverage for the home often extends beyond the house itself to attached structures such as decks.
Homeowners should also understand the difference between Replacement Cost and Actual Cash Value, as it can have a significant impact on what is paid after a loss.
Policies come with a limit that is based on the cost to rebuild your home. Many policies also come with inflation protection, which increases your coverage limit when your policy renews. That said, these incremental increases may not keep up with increases in construction costs and would not factor into renovations you’ve made. So it’s important to regularly review your limit with your insurance representative and advise of any major changes to ensure you’re fully covered.
In most cases, to receive full replacement cost, you are required to repair or rebuild on the same site. Some policies allow you to rebuild at another location, usually capped at what it would have cost to rebuild on the original site. If you choose not to rebuild, a cash settlement is typically paid on an actual cash value basis. It’s worth asking about the options available under your policy.
Insurance is designed to replace what you had, not fund upgrades. If you decide to rebuild with higher-end finishes or add new features, those improvements would be at your own expense.
Replacing Your Belongings
Comedian George Carlin referred to houses as just a "place for my stuff." He was joking, but he wasn't entirely wrong. Once the structure is rebuilt, the next question is: how do we replace the things inside it?
One of the biggest challenges is trying to remember everything you owned. It’s important to take photos or videos of your belongings and store them somewhere other than your home. Don't forget to get pictures of closets, drawers, storage rooms: places where valuable items tend to accumulate. Updating that visual inventory once a year can make the claims process much easier.
Not everything necessarily has to be replaced. For some items, policyholders may receive actual cash value. Keep in mind that used belongings may not be worth as much as you think. An item that was expensive when purchased could have a relatively low value years later.
On the other hand, some possessions may be worth more than a standard policy is designed to cover. Valuable items such as jewellery, artwork and collectibles usually have special limits. To insure them to their full value, talk to your insurance representative about additional coverage.
Your Expenses While Out of Home
Most home insurance policies include coverage for Additional Living Expenses (ALE) when an insured peril makes a home temporarily uninhabitable.
The key word is "additional." These are costs you incur because you're unable to be at home. Think hotel stays and restaurant meals, not mortgage payments and property taxes, which you would have incurred regardless.
One of the lesser-known aspects of ALE coverage is that there does not need to be damage to your home. If you're under a mandatory evacuation order because of a nearby wildfire, for example, you may access this coverage immediately, even if your home is never touched by the blaze.
An important tip: keep every receipt. While hotel stays and restaurant meals are the most common Additional Living Expenses, policies don't spell out every expense that may qualify. Document everything and discuss with your adjuster.
A common misconception is that ALE has a fixed maximum dollar amount for a hotel charge per night. In reality, policies typically cover the reasonable cost of alternative accommodations. This recognizes that hotel prices can vary significantly depending on where you live and the circumstances surrounding the loss.
Repairing Other Structures on Your Property
The damage may not stop at the house itself. Detached garages, sheds, fences and other structures on your property are often covered too.
Many homeowners unintentionally underestimate the value of these structures. A detached garage that has been converted into a heated workshop or rec room can be far more expensive to replace than a basic outbuilding. The same is true of high-end fences and gazebos.
It's important your insurer knows about these upgrades so these items can be fully covered.
It's also worth remembering that insurance covers sudden and accidental loss, not a lack of maintenance. If a fence or garage collapses because it has deteriorated over time, that generally won't be covered.
Other Coverages You Might Not Know You Have
Depending on your policy, here are some other coverages you might have:
Protection for personal property while moving from one home to another.
Reimbursement for the unauthorized use of your credit or debit card.
Coverage for outdoor trees, shrubs and landscaping. Read more here.
Payment of certain fire department charges related to protecting your property.
Replacement or re-keying of locks if your house keys are stolen.
The Bottom Line
Home insurance does much more than help rebuild a house and its contents.
Coverage varies by policy and insurer, so talk to your insurance representative to understand all the protections you have before disaster strikes.
Another home insurance coverage that is often overlooked and poorly understood is Personal Liability. Click here to learn how your home insurance policy financially protects you if you cause unintentional harm or damage to others.
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