Before you can search for a new homeowners insurance policy, you should first know how much home insurance is enough to protect you against a potential loss. Many factors can affect your coverage needs, including the value of your home and the things you own inside it. In this post, we will break down the various types of coverage tucked away into the two most frequently purchased home insurance policies – the HO-3 and HO-5.
Coverage A is protection for your Dwelling, which is the primary structure of your home. Under HO-3 and HO-5 policies, Dwelling coverage includes damages caused by all types of risk, except those excluded in writing.
Having the right amount of Dwelling coverage is essential, as it:
- Provides sufficient funding to rebuild or repair your damaged or destroyed home
- Sets the baseline from which other home policy coverage limits are calculated for example contents, other structures or loss of use.
- Protects you from depreciation at claim settlement, which allows insurers to pay a reduced amount to you by underpaying for partial losses at actual cash value at the time of loss if you have underinsured your dwelling.
The team here a Tagge Insurance is happy to help you calculate your coverage needs using our Home Cost Estimator tool. This allows us to place emphasis on the most important factors in your coverage: the cost to clean-up your property and rebuild your home after a disaster. We use current, local construction cost estimates – not the price you paid for your home or the value of your lot. This allows us to reach a more accurate figure that can be adjusted for inflation in the future.
The other structures on your property need to be insured too, and that is exactly what Coverage B on your home insurance policy covers – usually at a value equal to 10 percent of your Dwelling coverage. Nearly all homeowners need coverage for Other Structures, whether it’s for a fence and driveway or a pool house, barn, or in-ground pool.
Home insurance doesn’t just protect your house, it protects everything in it, too. Coverage C on your insurance policy reimburses you for the loss of your home’s contents. It can also provide coverage for damaged or stolen possessions that are not stored inside your home. The replacement of your contents can be done on either a
If you have an HO-3 home insurance policy, your personal belongings are only covered for damages caused by the events specifically named in your policy. HO-5 features looser terms, extending coverage for damages caused by all types of perils with the exception of a few exclusions listed in the policy.
You can only recover compensation, however, for the items you declare a loss. That is why we recommend taking an inventory of your home’s contents and storing it somewhere safe. Many mobile apps are available to make home inventory maintenance as easy and hassle-free as possible. Not to mention, you can access cloud-based content from anywhere in the world if you need to declare a loss.
Loss of Use
Coverage D in your insurance policy minimizes your financial burden when you are unable to live in your own home safely. Whether it is temporarily repaired or rebuilt from the ground-up, your Loss of Use coverage can cover the excess living expenses, such as the cost of rent or using a Laundromat. Many insurance companies provide standard Loss of Use limits equal to approximately 20 percent of your Dwelling coverage.
Continue reading part two of “How much home insurance is enough?”