Homeowners insurance

Homeowners insurance covers the structure, the contents, the cost of living elsewhere while repairs happen, and liability if someone is hurt on the property. Every mortgage lender requires it, and holding it is a condition of the loan rather than a choice.

The four coverages#

Dwelling covers the structure itself against covered perils.

Personal property covers belongings, usually at a percentage of the dwelling limit, and often with sub-limits on categories like jewellery or electronics that catch people out at claim time.

Loss of use pays additional living expenses while the home is uninhabitable — which for a serious fire can run for many months and is the coverage most underestimated.

Liability covers injuries to others on the property and is the coverage most likely to face a claim far larger than the house is worth.

Rebuilding cost, not market value#

The dwelling limit should reflect what it costs to rebuild, not what the house would sell for.

Those numbers diverge in both directions. Land carries value and does not burn, so a house on an expensive lot may need less dwelling coverage than its sale price suggests. In areas where construction costs exceed sale prices, the opposite holds and an owner insuring to market value is badly underinsured.

Construction costs have moved considerably in recent years, and a limit set at purchase and never revisited is very often now too low.

What is excluded#

The two big ones are flood and earthquake, both requiring separate policies.

Flood is where most disputes arise, because the distinction is about direction. Water escaping a pipe inside the home is generally covered. Water entering from outside — rising water, surface water, sewer backup without an endorsement — is generally not.

Also commonly excluded or limited: gradual damage, wear and tear, mould beyond a sub-limit, and damage occurring while the property is vacant.

That last exclusion matters#

Most standard policies restrict or void coverage once a property has been unoccupied beyond a stated period — often thirty or sixty days.

An owner who moves out, inherits an empty house, or leaves a property between tenants can be uninsured without having done anything or received any notice. The policy is still in force and still being paid for; it simply no longer covers the thing it was bought for.

Where a property will be empty, the correct product is a vacant property policy, and switching to one before the vacancy clock runs is considerably cheaper than discovering the gap after a loss.