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 accessed 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.
Coverage E – Personal Liability
Personal liability is one of the most important components of a standard home insurance policy. Even though it does not provide direct protection for your home and belongings, it can still protect you against the loss of your assets due to a lawsuit. Personal liability coverage safeguards you against financial responsibility when you, your pet, or someone in your household is at-fault for injury to a third party or damage to their property. This can include losses that occur away from your home, as well as on your property. There are only a few exceptions – usually for incidents that would be covered by other insurance policies, such as car or boat insurance.
The Cost of a Lawsuit
How much will a lawsuit cost you? The answer comes down the extent of the damages you cause. This can include medical bills and lost wages, as well as replacement of property. You may also be responsible for emotional trauma, punitive damages, legal expenses, and more. Some of the most commonly filed claims include damages for:
- Dog bites or pet-related injuries
- Damages to hotel property
- Injuries caused by bicycling accidents
- Slip-and-fall accidents
Here at the Don Neeley Agency, we recommend our customers purchase high-limit personal liability coverage of at least $100,000 to $300,000. If you select limits that are too low, you may need to liquidate your own investments and savings to pay for excess damages beyond the limits of your policy. If you do not have adequate assets to cover the damages, you may need to sell some belongings or otherwise make payments from future income to satisfy the debt.
Coverage F – Medical Payments
Medical payments coverage can help pay for medical bills due to injuries that occur on your property. Unlike personal liability coverage, medical payments protection is not contingent upon fault. Instead, benefits are paid for victim medical bills to help cover the upfront cost of injuries, such as deductibles and co-pays. This coverage does not absolve you of any liability, but the extra $1,000 to $5,000 of coverage may be just enough to help avoid a lawsuit.
Insurance companies allow customers to customize home insurance coverage to suit their needs better. Endorsements provide extra coverage for specific claims, helping to minimize out-of-pocket damages after a loss that might not otherwise be covered by a standard home insurance policy. Examples of common endorsements include:
- Scheduled coverage for high-value personal belongings
- Replacement cost coverage for personal belongings
- Inflation guard for your dwelling
- Water backup and sewer protection
- Home business coverage
For help determining which endorsements may be right for you, contact our office today.
Beyond Home Insurance
There are additional insurance policies that can help supplement the coverage in a typical home insurance policy. Even the highest limits of liability protection, for example, may not be enough to protect against a major lawsuit. If you are sued for $800,000 and only have $300,000 in personal liability protection, how will you pay for the remaining $500,000 in excess damages?
For these scenarios, we recommend purchasing an umbrella insurance policy that helps pay for damages that exceed the limits of your primary liability coverage. These policies usually come with a minimum of $1 million of coverage – usually for just $200 per year or less. Having an umbrella in place could give you peace of mind during litigation and protect your family against financial ruin.
For more information or to request your free umbrella insurance quote, contact our office today.