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.
Personal Liability (Coverage E)
The next part of your home insurance policy safeguards your home, assets, and income against a different type of risk – liability. Coverage E provides personal liability protection when you or a member of your household is responsible for a third-party’s injuries or loss of property. Instead of draining your savings account or making payments from your future income, you may be able to rely on this section of your home insurance to cover your financial responsibility if you ever face a lawsuit.
Types of Losses
Accidents happen in the blink of an eye. Some are preventable, and some are not. Either way, you can be sued for any damages you are personally at-fault for. That could include a slip-and-fall accident on your property, or someone having a few drinks at your home & getting into an accident on their way home. Even if the victim has insurance, the insurer can still pursue you for compensation of the damages, which can total tens or even hundreds of thousands of dollars.
Dog bites, for example, are among the most frequently filed liability claims in the U.S. Wisconsin, in particular, is among the top ten states for dog bite claims, with average costs over $34,000 per injury. A severe injury could cost even more, especially if the victim requires surgery or experiences any nerve damage or cosmetic deformity.
As a policy-holder, you are only covered up to the limits you select in your policy. You remain responsible for any damages that exceed those limits, which could threaten your financial future. That is why we here at Pagel & Associates Insurance recommend our home insurance customers purchase personal liability coverage with high limits. Many homeowners opt for at least $100,000 to $300,000 of protection, but one of our team members will be happy to help you determine how much coverage is right for you.
Medical Payments (Coverage F)
If someone is injured while visiting your home, Coverage F on your home insurance policy helps pay for the medical bills. Perhaps a guest needs stitches after hitting her head on your cabinet door. Maybe a neighborhood child sprains her ankle jumping on your trampoline. Regardless of whose fault it may have been, medical payments coverage can help pay for the doctor’s visit, x-rays, or perhaps even a health insurance deductible. It does not relieve you of potential liability, but it may provide enough financial assistance to avoid a possible lawsuit.
Most medical payments coverage comes with limits between $1,000 and $5,000. Talk with one of our team members for help determining how much may be right for you.
A standard home insurance policy comes with broad coverages that correlate to the needs and risk vulnerability of most homeowners. However, some policy-holders need endorsements to provide additional coverage for more specific risks. There are many different home insurance endorsements you can use to modify and build upon your coverage. Examples include:
- Replacement cost coverage for personal belongings damaged due to a covered event
- Scheduled coverage for valuable personal belongings that exceed the limitations of your coverage
- Home business endorsement to cover the business use of your home and assets
- Inflation guard to provide increased dwelling coverage that keeps up with the rising cost of rebuilding your home
- Water and sewer coverage to protect your home against damages caused by a backup
- And more
Beyond Home Insurance
Umbrella insurance can be a valuable supplement to your home insurance policy, providing additional liability protection when you reach the limits of your primary coverage. Many homeowners use umbrella insurance to protect assets and income against expensive litigation better. Most policies come with a minimum of $1 million in additional supplemental liability protection, although higher limits are available.
Umbrella insurance is typically available for an average of $200 per year or less. Talk with an agent here at Pagel & Associates Insurance to request your free quote.