You can’t escape Mother Nature or prevent every accident, but you can take steps to protect your property and yourself against unexpected loss. Home insurance provides coverage for damage, destruction, and loss of your home and personal belongings, as well as a wide range of other benefits. In this article, you’ll learn more about the two most common forms of homeowners insurance and better understand how much home insurance is enough for you.
Dwelling (Coverage A)
Coverage A on your policy is for your Dwelling. It protects the structure of your home – both the interior and exterior. Mortgage lenders typically require homeowners to purchase Dwelling insurance to protect their financial interest in the property, but all homeowners should use this important coverage to safeguard against a disastrous loss.
The two most frequently purchased homeowners insurance policies – the HO-3 and HO-5 – each provides complete Dwelling coverage for all types of risks except those excluded by the policy in writing. Upon filing a claim, homeowners simply pay a deductible, and insurance covers the rest. Deductibles usually range between $500 and $2,000, depending on the amount you select. Low deductibles can minimize your financial burden after a major disaster, but a high deductible can reduce the amount you pay for your annual premiums.
How Much Dwelling Insurance is Enough?
To calculate your dwelling coverage needs, we recommend speaking with an agent here at Feivor Insurance. Using a Home Cost Estimator, we can help you accurately assess your coverage needs based on the estimated cost to rebuild a home of similar size and similar finishes. We take into account current local construction and debris cleanup costs – not the price you paid for your home or the value of your lot or land. We can also help you recalculate your coverage needs every few years to account for inflation.
Of all the coverage types on your home insurance policy, your dwelling limits are of utmost importance. First, it is the basis from which the default limits on other coverages in your home insurance policy are established. Also, in most cases, your home’s structure is the most expensive asset to replace on your policy. By purchasing adequate limits, you assure adequate funding to rebuild your home after a total loss.
Finally, sufficient Dwelling coverage prevents penalization from the Co-Insurance Rule, which allows insurance companies to cut benefits for partial losses in proportion to the amount you are underinsured for your home’s structure. In other words, if you only have enough coverage to pay for 70 percent of your home’s reconstruction costs, a partial claim might only be covered for a lesser percent of the loss as well.
Other Structures (Coverage B)
You probably have other structures on your property, whether a fence and driveway or a shed and detached garage. Anything not attached to the primary structure of your home is covered under ‘Other Structures’ on your policy. Similar to your Dwelling coverage, your deductible applies to any claims filed for damages to Other Structures. Often, insurers will automatically set the coverage limits for Other Structures at 10 percent of the Dwelling limit value, although it is possible to modify that limit if necessary.
Personal Property (Coverage C)
The contents inside your home could be worth nearly as much as the home itself. A total loss would be financially devastating as you attempt to replace all of the things you once owned. From your electronics, furniture, and appliances to your sporting goods, toys, and apparel, Personal Property coverage can cover tens of thousands of dollars worth of goods – all with minimal out-of-pocket costs for you.
Most insurance companies set default coverage for home contents – often valued between 50 and 80 percent of your Dwelling coverage. However, additional coverage may be available in the form of higher limits or endorsements for high-valued items. Should you ever file a claim, it helps to have a home inventory to declare losses. You can store a physical copy of your home inventory in a safe place away from your home, or you can utilize the convenience of an app, which digitally stores your information in the cloud.
Loss of Use (Coverage D)
Imagine being unable to live in, sleep in, or perhaps even visit your own home for weeks or months at a time. If your home is severely damaged or destroyed, you may need to find temporary living space. Loss of Use coverage pays for excess costs above and beyond your normal living expenses that you incur as a result of displacement from your home. HO-3 and HO-5 policies typically include Loss of Use coverage with default coverage limits equal to 20 percent of Dwelling coverage limits.
Personal Liability (Coverage E)
If you are sued, will your insurance cover it? Though home insurance liability does not cover every type of lawsuit (things like car accidents and personal injury are generally excluded), it does protect against a wide range of accidental third-party losses for which you or a member of your household is at-fault, including bodily injury and property damage. This includes accidents on your property and those that occur away from your home.
Examples include:
- Hitting a golfer on the course with a rogue ball
- Pet-related injuries, such as dog bites
- A guest who falls down the stairs due to a broken banister
- An injury that occurs when your child runs hits another child with his bicycle
- Accidental damages to a hotel lobby or room when traveling
How Much Coverage Do You Need?
It is important to choose adequate personal liability limits, as you may have to pay for any excess damages out-of-pocket. We typically recommend high limits of at least $100,000 to $300,000, although your coverage needs may vary depending on your assets and income. Talk with an agent here at Feivor Insurance for help determining how much liability protection is right for you.
Medical Payments (Coverage F)
Medical payments coverage is the next section of your home insurance policy. This coverage is not liability protection, nor does it absolve you of any liability for third-party losses. However, it is designed to provide small claims resolutions for minor accidental injuries when someone is injured on your property. There is no need to prove fault or negligence for the injury. Instead, your insurance may pay up to the limits of your policy (usually between $1,000 and $5,000) to cover basic medical bills, such as a doctor’s office visit or the cost of stitches.
Endorsements
Endorsements provide extra home insurance benefits outside of those included in a standard policy. Many homeowners utilize endorsements to better personalize their coverage – particularly if they face specific risk vulnerabilities. Some of the most common home insurance endorsements include:
- Home business endorsements
- Water backup and sewer endorsements
- Inflation guard endorsement
- Replacement cost coverage endorsement
- Scheduled coverage for high-value belongings
- And more
As a homeowner, you can decide which endorsements are right for you. However, certain endorsements, such as the water backup and sewer endorsement, are recommended for nearly all homeowners, as they have the potential to save you tens of thousands of dollars in damages. For help adding endorsements to your home insurance policy, contact our office today.
Beyond Home Insurance
If you have home insurance and perhaps even auto insurance with high liability coverage limits, you might assume you are protected against any possible scenario. The truth is even the maximum coverage may be inadequate to cover the cost of a major, million-dollar lawsuit, leaving you with hundreds of thousands of dollars in excess damages.
Umbrella insurance is extra liability protection that supplements the limits of your primary coverage. It usually extends coverage by an additional $1 million or more, and policy premiums typically start at just $200 per year or less. Talk to an agent here at Feivor Insurance about how affordable umbrella insurance can be for you and how it could protect your income and assets against financial ruin.
