One of the most common problems homeowners face is being underinsured for a claim. Whether your policy excludes coverage for certain types of losses or your limits are too low to pay for damages, you could face a major financial loss without the right insurance. There are several factors to consider when determining how much home insurance is enough. This article will explore the various types of insurance protection available on most policies and help you calculate your coverage needs.
Coverage A – Dwelling
There are several types of homeowners insurance available, but most people choose either an HO-3 or HO-5 policy due to their broad, open-peril coverage. Both offer protection for your home’s structure against all risks not excluded in writing under Coverage A (Dwelling). Homeowners are still responsible for paying a deductible toward the cost of claims, but this could be as little as $500. However, choosing a higher deductible around $2,000 could significantly reduce the price you pay for home insurance. However, we only recommend selecting a deductible that you could reasonably afford in the event of a loss.
How Much Coverage is Enough?
While you can raise your deductible to lower the cost of insurance, you should never sacrifice coverage for the sake of saving money. Whether you have a partial or total loss, you should have enough Dwelling coverage to pay for debris clean-up, as well as repairs or reconstruction of your house with similar materials and finishes.
If you choose an amount that is too low, you risk being underfunded for your claims – and not just total loss claims. According to the ‘Co-Insurance Rule,’ insurers can pay for partial losses in an amount proportionate to the amount you have underinsured your home. In other words, you might only receive reimbursement for 70 percent of your loss if your Dwelling coverage limit is 70 percent of what it actually should be.
For help calculating your Dwelling coverage needs, contact a helpful agent here at Philleo Agency Insurance.
Coverage B – Other Structures
If you have other structures on your property that are not attached to your main home, chances are they are covered automatically under Coverage B on your home insurance policy. Most insurers include this coverage by default and at no extra cost – usually for an amount equal to 10 percent of your Coverage A limit; this can come in handy if you need to replace your fence after a storm or rebuild your detached garage after a tree falls on it.
Coverage C – Personal Belongings
If your home is destroyed or damaged, chances are the things inside it will be too. But it’s not just disasters that can cause loss of your personal belongings. Imagine coming home from vacation to find your home burglarized. Fortunately, both HO-3 and HO-5 include coverage for your home’s contents, albeit for different types of hazards. Under HO-3, personal belongings are typically only covered for damages caused by the events that are itemized in the home insurance policy. Under HO-5, personal belongings are covered for all risks, except those listed as exclusions in the home insurance policy.
Whether you choose an HO-3 or HO-5 policy, your insurer will likely include default coverage for your possessions with limits likely to fall between 50 and 80 percent of your Coverage A limit. However, you may need additional coverage beyond the default limits, as well as additional schedule coverage for high-value belongings that are subject to dollar limits in your standard coverage.
To get an accurate calculation of your coverage needs, we recommend taking inventory of your home. Be sure to include everything from your small kitchenwares to your large electronics. Then, store it safely – preferably away from your home or online for easy access if you need to file a claim. Several mobile apps are available to help homeowners safely maintain and store a home inventory.
Coverage D – Loss of Use
If you lose access to your home while it is being repaired or rebuilt, Coverage D in your insurance policy helps pay for your excess living expenses. This can prevent you from having to dip into personal savings to pay for temporary rent, hotel fees, laundromat expenses, and restaurant meals. In most cases, Loss of Use is covered up to 20 percent of your Dwelling coverage, although this may vary from insurer to insurer.
Continue reading part two of “How much home insurance is enough?”