It happens all the time: Local news reports fill with stories of homeowners who found out too late their insurance policies fell short of covering them against a major disaster. Knowing what your insurance policy does and does not cover is an essential part of protecting your property and assets against loss. Continue reading to learn more about the two most common types of home insurance – the HO-3 and HO-5 – and learn how much home insurance coverage is enough for you.
Coverage A – Dwelling
The first coverage listed on your policy covers the structure of your home, from the brick and masonry to the countertops, and flooring. If you have a mortgage, this coverage is mandatory, but we recommend it for all homeowners as a means of protecting your property. HO-3 and HO-5 policies do not limit coverage based on specific perils. If your home is damaged or destroyed due to any event not excluded by your policy in writing, it’s covered.
When you purchase your policy, you will choose a deductible; this is a dollar amount – often between $500 and $2,000 – that you feel comfortable paying toward the cost of future claims. Higher deductibles typically result in lower premiums, but lower deductibles can reduce your financial burden after a covered event.
You will also choose an amount to insure your home for; this should not be contingent upon the market value or price you paid for your home, but rather on the actual cost to rebuild your house in the event of a total loss. While your land or lot should not be included in the calculation, you should leave room for debris cleanup and remediation. If you fail to insure your home fully, you could fall short of being covered for even a partial loss. The Co-Insurance Rule allows insurance companies to deny a portion of the payment for partial losses if your coverage is less than what is required.
To avoid co-insurance penalization, talk to an agent here at Neeley Insurance for help calculating your dwelling coverage needs.
Coverage B – Other Structures
Like your home, the other structures on your property need coverage, too. The cost of replacing your driveway, repairing your fence, or rebuilding a detached garage can total thousands of dollars. Fortunately, these structures are automatically covered under standard insurance policies – usually at a value equal to 10 percent of the limits on your Dwelling coverage. If you have several additional structures on your property or one that exceeds the limits of your insurance, it is possible to request additional coverage.
Coverage C – Personal Belongings
It’s not just the outside; the inside counts, too. Personal belongings coverage helps protect the contents of your home against theft and a wide range of other perils. The limits on contents coverage are usually between 50 and 80 percent of your Dwelling coverage with certain limitations, although you can request higher limits or special endorsements for high-value items. A standard HO-3 policy will cover personal belongings only for named perils listed in your policy, whereas an HO-5 policy covers personal belongings for all risks that are not specifically excluded from your policy.
All homeowners should maintain an accurate inventory of the contents of their homes, update it regularly, and store it in a safe place – preferably not inside the home. Several apps make it easy to maintain a cloud-based version of your home inventory that can be access ed from anywhere in the world.
Coverage D – Loss of Use
If your roof caves in under the weight of ice and snow, your home may no longer be livable. Loss of Use coverage helps pay for excess living expenses, such as rent, while you are temporarily displaced. In most cases, Loss of Use coverage limits default to 20 percent of the Dwelling limit, although this may vary from insurer to insurer.
Continue reading part two of “How much home insurance is enough?”