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.
Coverage E – Personal Liability
Imagine welcoming guests into your home for a baby shower. Your usually docile dog is overwhelmed by the activity in your house and responds with aggressive behavior, biting and severely injuring a party-goer’s hand. The guest experiences nerve damage and will need some reconstructive surgery as well as several weeks off work for recovery and rehabilitation. You are sued for $100,000 in damages, for which a court finds you fully at fault. How will you pay for the debt?
Coverage E on a standard home insurance policy is designed to protect you in such scenarios. This coverage can help pay for legal fees, medical bills, property damages, punitive damages and more up to the limits of your policy. Having adequate coverage could protect your savings and assets against liquidation, as well as your future income against garnishment.
Here at Philleo Agency Insurance, we recommend purchasing high-limit personal liability coverage for your home insurance policy. Many homeowners choose limits between $100,000 and $300,000, although our team can assist you in determining how much coverage is right for you.
Coverage F – Medical Payments
You work hard to keep guests safe in your home. However, if one of them falls down your stairs or slips on spilled water, medical payments coverage helps ensure they get the medical attention they need right away. This section of your insurance policy is not contingent upon fault; rather, the coverage is automatically allocated to third-party individuals who are injured in your home or on your property. The limits for this coverage are usually capped between $1,000 and $5,000, but this is typically enough to cover a doctor’s office visit or a health insurance deductible.
Endorsements add important value to a standard home insurance policy, although these enhancements are optional. That is because endorsements are designed to meet the needs of individuals with specific risk vulnerabilities or coverage needs – not the general population of Wisconsin homeowners.
For example, homeowners who operate a business from their homes may need a home business endorsement to ensure adequate coverage. Likewise, those with high-value assets or collections may need to schedule additional coverage beyond that which is available in a standard homeowner’s insurance policy. Other common home insurance endorsements include:
- Inflation guard protection for your dwelling
- Water backup and sewer protection
- Replacement value coverage for personal belongings
- And more
For help adding one or more endorsements to your policy, contact the team here at Philleo Agency Insurance today.
Beyond Home Insurance
If you are sued, your personal liability insurance is designed to cover your financial responsibility. If you are sued for an amount that exceeds the limits of your policy, however, you may need supplemental liability protection to avoid a major financial loss. Umbrella insurance is an affordable way to protect your income and assets against major lawsuits that exceed your primary coverage limits. Costing an average of $200 per year or less, a typical umbrella policy provides homeowners with an additional $1 million or more in liability protection.
This coverage is generally flexible and can be applied to claims filed against your home insurance, as well as those filed against the liability coverage on other policies, such as your auto insurance. If you are ever faced with a million-dollar lawsuit, your umbrella insurance could prove to be the most value policy in your insurance portfolio, essentially protecting your family and your future against financial ruin.