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.
The next coverage on a typical home insurance policy is Coverage E – personal liability. This important coverage helps shield your income and assets against lawsuits involving a third-party’s injuries or property loss. This could come from an accident occurring on your property or an accident you or a member of your household causes while traveling away from home. Apart from certain events, such as car accidents, the personal liability coverage in your home insurance generally covers you wherever you go.
Examples of personal liability claims include:
- Dog bite injuries ($37,000)
- Home accidents, such as slips and falls
- Accidental damage to your hotel room
- Bicycle accidents
- And more
How Important is Personal Liability Coverage?
It may not seem directly correlated to safeguarding your home, but having the right personal liability coverage limits could be the single factor in protecting your way of life. Without adequate limits, you still must pay any damages that exceed the coverage in your policy, which could leave you with tens or even hundreds of thousands of dollars in debt. Unless you have that much money in the bank, you may have to sell your assets and make payments from future income to cover the damages.
Here at Tagge Insurance, we help our customers calculate their risk vulnerability and determine how much coverage could be right to fit their needs. Many opt for high limits of personal liability coverage – usually between $100,000 and $300,000. If you think you may be underinsured for personal liability, contact our office to speak with an agent today.
If a guest is injured in your home, medical payments coverage provides quick payment for medical bills even if you are not at-fault for the accident. Though the coverage is generally low – usually $1,000 to $5,000 – it is often enough to cover doctor’s office bills or even a health insurance deductible.
Endorsements help you make your standard home insurance policy your own. These optional benefits extend the coverages within your policy to provide greater benefits and also safeguard against additional losses that may otherwise be excluded from standard coverage.
Here at Tagge Insurance, we recommend endorsements to most homeowners, although they vary depending on the needs of the policy-holder. For example, nearly all homeowners can benefit from the additional protection provided by a water backup and sewer endorsement. Likewise, most could benefit from replacement cost coverage for their personal belongings, and inflation guard endorsement to protect against the rising future cost of rebuilding a home, and earthquake coverage. However, there are other endorsements that are specific to only certain individuals. Examples include those with high-value personal belongings such as jewelry may need to schedule those items, or a home business would benefit from a home business endorsement.
For help determining which endorsements to add to your home insurance policy, contact one of our helpful team members today.
Beyond Home Insurance
Having the right home insurance is a good start to protecting your home and assets, but there may still be risk exposures not covered by the high limits of your policy. For example, a $300,000 maximum personal liability limit would not be enough to cover a million-dollar lawsuit. In this case, you would need a supplemental policy called umbrella insurance to help fill in the gaps left behind by your primary coverage.
Umbrella insurance pays excess liability damages beyond that which is covered by your home insurance policy and other types of coverage, such as auto insurance. It typically extends your coverage by at least $1 million, although some homeowners opt to purchase higher limits of $2 million or more.
To find out more about umbrella insurance and how you may qualify for coverage for just $150 per year or less, contact our office today.