Few things are worse than filing a home insurance claim and finding out your policy will not cover all of your losses. Unfortunately, that is exactly what can happen if you do not have enough or the right types of coverage for your property, belongings, and more. In this article, we will break down the two most common forms of home insurance and what they cover so that you can better understand how much home insurance is enough to protect you against loss.
Coverage A – Dwelling
There are several types of home insurance, the most popular of which are the HO-3 and HO-5. Both of these policies include a complete package of coverages, including coverage for your home. Known as Dwelling Coverage, it pays for the repair or rebuilding of your home after a total or partial loss. Both HO-3 and HO-5 protect your home against all risks except those that are specifically excluded in your insurance policy.
For each claim you make against your Dwelling coverage, you pay the deductible you choose at the time you purchase the policy, usually between $500 and $2,000, and your insurer takes care of the rest up to the limits of your coverage. Lower deductibles minimize your financial responsibility after a loss, but a higher deductible can generate lower annual premiums. A member of our team can help you determine which deductible is right for you.
Calculating Your Coverage Needs
When it comes to your home insurance coverage, the price you paid for your home is not relevant. Instead, you should calculate your coverage needs based on the estimated cost to rebuild a comparable house with similar finishes according to today’s construction prices. Here at Terp Family Insurance, we use a Home Cost Estimator to analyze and project your coverage needs based on the cost of clean-up and construction – not the market value of your home or lot.
If you insure your home for too little, you risk not having enough money to restore it after it has been damaged or destroyed. You could also make yourself subject to enforcement of the Co-Insurance Rule, which allows insurance companies to underfund even partial Dwelling claims in proportion to the amount you have under-insured your home.
Coverage B – Other Structures
Most homeowners have additional structures on their property besides their homes. Other Structures coverage helps pay to repair or replace your driveway, detached garage, fence, pool house, and other structures that are not used as a part of your business. Most companies set default coverage limits equal to approximately 10 percent of the coverage of your Dwelling, although this can vary from insurer to insurer.
Coverage C – Personal Belongings
If your home is destroyed in a fire, everything inside it will be, too. Personal Belongings coverage helps reimburse you for your loss, from your furniture and electronics to your salt and pepper shakers. Of course, it can be difficult to keep track of everything you owned after a disaster. That is why we recommend taking an inventory of your home and storing it away from your house or online. There are several mobile apps designed for convenient cloud-based storage and maintenance of your home inventory, making it easier to declare losses when you make a claim.
HO-3 and HO-5 policies both cover personal belongings with one major difference. Under a standard HO-3 policy, home contents are covered only for events named in your policy. Any damages incurred as a result of events not named in the policy are excluded from coverage. With the more comprehensive HO-5 policy, home contents are covered for all risks so long as they are not specifically excluded in your policy. Regardless of which policy you choose, your insurer will likely limit your coverage to an amount between 50 and 80 percent of your Dwelling limit, although higher limits are available.
Coverage D – Loss of Use
If you were suddenly unable to live in your home, where would you live while it is repaired or rebuilt? How would you do the laundry or prepare meals for your family? Fortunately, home insurance can take care of excess living expenses incurred from the loss of the use of your home. Often, insurers set default Loss of Use limits at 20 percent of the Dwelling limit, which is typically more than enough to cover temporary expenses.
Personal Liability (Coverage E)
What happens if your child accidentally hits a baseball through the neighbor’s window, shattering it and injuring a small child inside? What would you do if your dog felt threatened by a small child and bit her during a walk in the park? With the average dog bite-related injury costing more than $37,000, it is a good thing these types of scenarios are generally covered under the personal liability section of a standard home insurance policy.
Personal liability coverage protects you when you are financially responsible for a third-party’s accidental bodily injury or property damage. This can include incidents caused by you, your pet, or members of your household both on your property and while traveling away from home.
Additional examples of personal liability claims may include:
- Injuring a golfer with your cart on the golf course
- Injuries to a guest who trips over a hole in your yard
- Accidents involving bicycle or pedestrian activity
- Accidental damages to your hotel room
- And more
We recommend purchasing enough coverage to protect your future income and the value of your savings and assets against a possible lawsuit. Many homeowners opt for personal liability limits between $100,000 and $300,000, but your needs may vary. Contact a team member here at Terp Family Insurance for help determining your individual liability risk and how much coverage may be right for you.
Medical Payments (Coverage F)
Medical payments coverage is a small part of most home insurance policies, but it can hold the key to preventing a possible lawsuit. Unlike liability insurance, this coverage does not require that you or a member of your household be at-fault for a third-party injury. Instead, the policy helps pay for expenses when someone seeks medical care after being injured on your property. Typically, the medical payments benefits are capped between $1,000 and $5,000, which is often enough to cover a health insurance deductible or the cost of a doctor’s office visit. While this coverage does not relieve you of any potential liability, it may deter a victim from pursuing additional damages.
Home insurance endorsements provide extra benefits beyond those which are available on a standard policy. While optional, some endorsements are highly recommended for most homeowners. For example, water backup and sewer coverage can provide important benefits if you experience a sump pump overflow or water backup from a sewer or drain. Without the endorsement, you might have to pay thousands of dollars in home repair costs out of your own pocket.
Examples of other endorsements include:
- Home business endorsement
- Inflation guard endorsement
- Replacement cost coverage for personal belongings
- Scheduled coverage for expensive items that exceed personal belongings coverage limits
- And more
Beyond Home Insurance
Finally, we recommend talking with your agent about an umbrella policy, which provides supplemental liability coverage against major lawsuits with damages that exceed the limits of your primary coverage. Umbrella insurance can protect your income and assets by providing secondary coverage – usually up to an additional $1 million or more.
Most homeowners can get umbrella coverage for just $200 per year or less. For more information or to request your free quote, contact our office today.