As a homeowner, you already know how important it is to protect your property. What you may find yourself wondering, however, is, “How much home insurance is enough?” The answer may be different for everyone based on the value of your home and possessions, but ultimately, having the right limits is just as important as having the right types of coverage. In this post, we will explore the package of coverages included in most home insurance policies and help you better understand how much protection you really need.
What Type of Policy Do You Have?
Your home is a significant asset that deserves complete coverage and comprehensive insurance protection. Unfortunately, not all home insurance policies are alike. There are multiple forms of coverage sold in the U.S., some of which do very little to protect your financial interests. The two most frequently purchased policies – the HO-3 and HO-5 – offer broader protection with open-peril Dwelling coverage and a full range of additional coverages designed to minimize your exposure to risk. If your home insurance is not HO-3 or HO-5, contact the team here at Pagel & Associates Insurance for a consultation today.
Coverage A – Your Dwelling
Bad things happen to houses sometimes, and there is very little that homeowners can do to stop it. Whether a tree falls on your home or a fire destroys your house, Coverage A is designed to make your home as good as new. Here’s what to expect:
- File a claim with your insurance company for your loss.
- An insurance adjuster will assess the damages and begin processing your claim.
- Pay your deductible for the damages (usually between $500 and $2,000). Remember that high deductibles can significantly reduce the amount you pay for home insurance each year.
- Begin rebuilding your home with funding from the insurance company up to the limits of your policy.
To prevent falling short of your coverage needs, we recommend meeting with an agent here at Pagel & Associates Insurance to accurately estimate the cost to rebuild your home with similar materials and finishes. The purpose of your coverage should be cleaning up after a disaster and replacing your home – not paying off the mortgage or insuring your property for its purchase value. Not only will this help assure you have enough money to replace your home, but it will also help prevent penalties imposed by the ‘Co-Insurance Rule.’ Under this clause, insurers can underpay for partial losses when the Coverage A amount is less than what is required.
Other Structures (Coverage B)
Insurance companies know you probably own more than just a house. Chances are your property also comes with other structures, such as a fence, detached garage, or a gazebo, all of which are insured under Coverage B. Usually, this coverage is offered by default at 10 percent of the limit you select for your Dwelling. Additional coverage may be available if you have multiple structures or a very expensive structure with a replacement value that exceeds your default coverage limits.
Personal Belongings (Coverage C)
Your home insurance doesn’t just protect the outside of your house; it covers everything inside it, too. Personal Belongings coverage helps reimburse you for the actual cash value (ACV) of your home’s contents if they are stolen, damaged, or destroyed due to a covered event. If you have an HO-5 policy, that means you are covered for all risks except the ones your insurer excludes in writing. If your coverage is HO-3, your Personal Belongings protection is more limited, with coverage only for losses caused by specific named perils.
One of the most helpful steps you can take is creating an inventory of your possessions, including items you store outside your house or inside your car. We recommend using a mobile app that stores and updates your information automatically, but you could also keep a paper copy in a safe place – preferably away from your home. Then, use your inventory to calculate your actual coverage needs and compare it to the default coverage in your home insurance, which is likely between 50 and 80 percent of your Coverage A limit.
Loss of Use (Coverage D)
Losing a home is never easy, but accruing additional living expenses because of it is like adding salt to a wound. If you are displaced from your home, Coverage D helps pay for excess costs, such as restaurant meals, hotel charges, and rent. Most homeowners find that they are more than adequately covered for Loss of Use when insurers set default coverage limits at approximately 20 percent of the Dwelling limit.
Continue reading part two of “How much home insurance is enough?”