What Does Building Insurance Typically Cover?

Building insurance, often known as dwelling coverage or property insurance for structures, protects the physical building. It protects the structure from specified perils. This insurance provides financial protection against unexpected losses for property owners.

Standard Coverage Components

A standard policy covers the physical structure against common perils. Coverage extends to main components like walls, the roof, foundation, and permanently installed fixtures. Built-in systems such as plumbing, electrical wiring, and heating and air conditioning units are also covered.

Policies commonly include fire and lightning. Coverage extends to damage caused by windstorms and hail. Explosions, vandalism, and damage from vehicles or aircraft are also standard inclusions.

Optional Coverage Add-ons

While standard policies cover many common risks, some situations are not included but can be added through endorsements or separate policies. Flood insurance, for example, is excluded from standard policies and must be purchased distinctly through the National Flood Insurance Program (NFIP) or private insurers. Earthquake insurance is also a separate add-on, covering structural damage from seismic activity.

Coverage for sewer backup or water damage from sump pump failure is another common add-on, protecting against water intrusion from these specific sources. Identity theft protection can sometimes be bundled as an endorsement. Extended replacement cost coverage can also be added, allowing for a payout that exceeds the dwelling’s insured value, typically by a percentage like 20% to 25%, to account for unforeseen construction cost increases.

Common Exclusions

Even with various optional add-ons, building insurance policies generally have common exclusions, meaning certain types of damage are not covered. Damage resulting from normal wear and tear, gradual deterioration, or a lack of proper maintenance is excluded, as insurance covers sudden, accidental losses, not upkeep. This also includes issues arising from neglect or deferred maintenance, such as long-term water leaks causing extensive rot.

Pest infestations, including damage from termites, rodents, or insects, are commonly excluded, as they are considered preventable through regular property management. Mold and fungus damage is often excluded unless it directly results from a covered peril, like a burst pipe, and even then, specific limits may apply. Further exclusions include governmental action, war, nuclear hazard, and intentional damage caused by the policyholder.

Understanding Policy Limits and Deductibles

Understanding building insurance involves knowing how policy limits and deductibles function. A policy limit represents the maximum amount the insurer will pay for a covered loss to the dwelling structure. This limit is set at the estimated cost to rebuild the home, not its market value, and is referred to as the “dwelling limit.”

Deductibles are the amount of money the policyholder must pay out-of-pocket before the insurance company begins to cover the remaining costs of a covered claim. For instance, if a policy has a $1,000 deductible and a covered repair costs $10,000, the policyholder pays the first $1,000, and the insurer pays the remaining $9,000. Choosing a higher deductible leads to lower annual premiums, while a lower deductible results in higher premiums. This directly impacts the policy’s cost.