What Home Coverages Should You Expect from an Insurance Policy
Homeowners insurance provides financial protection against disasters, theft, accidents, and loss.
A standard home insurance policy includes four different types of coverage. This includes coverage for the home structure, your personal belongings, liability protection, and additional living expenses.
The Structure of the Home
A home insurance policy will pay to rebuild or repair your home if it's destroyed or damaged by a hurricane, fire, lightning, hail, or another disaster listed in your policy. Many policies will also cover some detached structures that are on your property, such as a gazebo or pool shed, for about 10% of the amount of insurance you have on your home.
There are certain perils that won’t be covered, such as earthquakes, floods, and routine wear and tear. Be sure to read your policy carefully to make sure you know your home coverage. When you are purchasing insurance for your home, you will need to have enough to be able to rebuild your home.
Coverage for Belongings
Your clothes, sports equipment, furniture, and other personal items are covered if they are destroyed by a covered disaster or stolen. This coverage is usually about 50% to 70% of the insurance you have on your home structure. One of the best ways to determine if you have enough coverage is to do a home inventory. It’s important to note that this coverage also includes items you store off premises, such as in a storage unit.
Keep in mind that some companies limit the protection to 10% of the amount of insurance you have for your belongings. Expensive items, such as furs, art, jewelry, silverware, or collectibles, will be covered but there are limits to these items. In order to make sure your items are insured at the full value, you may need to purchase extra insurance and confirm the item is insured for the appraised value. Plants, shrubs, and trees are also covered under this portion of your home insurance, usually for about $500 per item. However, plants and trees won’t be covered if they are diseased or if you haven’t properly maintained the items.
Liability Protection
This coverage will help protect you against lawsuits for property damage or bodily injury that you and family members cause to other people. It can also cover damage caused by your pets. For example, if your dog bites someone, this will cover that person's medical expenses but won’t cover your own medical expenses if your dog bites you. This portion of the policy also pays for defending you in court and any judgments that are awarded within the stated policy limits.
While the limits usually start at about $100,000, you may want to have a higher level of protection so discuss this with your insurance agent. If you have significant assets, you also may want to get more coverage. This portion provides no-fault medical coverage so if your neighbor or friend is injured at your home then he or she can submit their medical bills to your insurance company. This means that expenses can be paid without a liability claim. This doesn’t include medical bills for your own family members.
Additional Living Expenses
This fourth part of the policy pays for the additional cost of living away from home if you aren’t able to live there because of damage after a covered disaster. It can pay for restaurant meals, hotel bills, and other costs that are above typical living expenses while your home is in the process of rebuilding. There will be limits to this part of the policy and some policies also have a time limitation.
Keep in mind that these limits will be separate from the amount that is available to repair your home. If you use up this portion of your policy then the company does still pay the full cost of rebuilding the home up to your policy limits. If you currently rent out part of the house then this also covers you for rent you would have otherwise collected from your tenant if your home wasn’t destroyed.
Additional Home Coverage to Consider
In addition to the standard home coverages, there may be additional options you want to consider.
Replacement Cost
Many companies will offer you the option for guaranteed replacement cost coverage for extra premiums. Speak with your agent if this is available and have him or her explain the advantage of this broader coverage. The most important coverage is usually offered in full replacement cost.
Additional Liability
You are able to purchase additional liability in order to stay protected.
Extra Contents Coverage
Most policies will have a flat percentage of the insurance amount for the home. If you have a lot of belongings, especially more expensive items, then you want to consider having this additional coverage.
Flood Insurance
A flood is one peril that isn’t covered by standard home insurance policies and many people have learned this after it’s too late. If you live in a high-risk area for floods, then you will need separate flood coverage. You don’t want to risk going without this coverage.
Earthquake Insurance
Earthquakes are another peril that isn’t covered so if you live in an area where earthquakes are common, you also want to purchase this additional insurance. In some areas, this coverage can be inexpensive, while it can be more expensive depending on where you live.
Home Coverages Not Included
Even with so many home coverages included in a standard policy, there are some things that are not covered that you need to be aware of. Floods and earthquakes are two things that are not covered but there are also some other things not in a standard policy.
Your policy typically won’t cover sinkholes unless you live in certain areas where an insurer is required to offer optional protection for this. You may need to consider this coverage if you live in a state where this disaster can be common.
Mold, termites, and burst water pipes aren’t typically something that insurance covers either, along with other damage caused by lack of maintenance. Taking small steps to keep your pipes warm during the winter and make sure your home is correctly ventilated means that you can protect your home from expensive repair bills that won’t be covered by your home insurance.
Home Buyers Insurance Guide
Knowing your home coverages is only half the battle and there are other things you need to know before you get home insurance.
Before You Start House Hunting
Before you start house hunting, you want to get prepared to get a good discount on home insurance. It helps to check your credit rating. Start with getting a copy of your credit report to make sure it’s accurate. You should have a renter’s insurance policy to protect yourself financially.
While You Are House Hunting
When you are looking for a house, there are different characteristics that can affect the choice, availability, and cost of home insurance.
Location and Quality of Fire Department: Houses that are located near a staffed fire department will usually be less expensive to insure.
Proximity to the Coastline: Houses that are located near or on the coast will usually cost more to insure than those that are further inland.
Age of the Home: Older homes are beautiful and have plenty of ornate features but these can be costly to replace and this can raise the insurance cost. Electrical and plumbing systems also become unsafe with age and lack of maintenance so you will need to know how much it’s going to cost to upgrade these features so that you can get insurance.
Condition of the Roof: The age and condition of the roof matters to your insurance company. Check the roof’s condition. Depending on the materials of the roof, you may even qualify for an insurance discount.
Construction Quality: Learn whether the home you are interested in is in compliance with current building codes. Homes that have careful craftsmanship and meet building codes are better able to withstand natural disasters.
Swimming Pools or Other Features: If your home has a hot tub, swimming pool, or other special features then you need to have some more liability insurance. You may even consider an umbrella liability policy in order to stay protected in case someone sues you after getting injured at your property.
Before You Put a Bid on the Home
Taking precautions before you put a bid on the home to learn more about the current conditions, house’s history and potential trouble spots can save you a lot of trouble when it comes to getting home insurance.
Check the loss history report. This report provides a record of the type of losses and can be valuable information. For example, if you find there is a claim for water damage then it’s important to know the source of the damage and whether or not the issue has been repaired. If the claim was due to hail or wind and the claim meant the home had a new roof then it becomes more attractive to insurance companies.
You want to have the home inspected by someone who is credentialed. The inspector should make sure to check the general condition of the home, look for water damage, pests, or termites, and review the plumbing and electrical systems. In addition, the inspector should show you where potential problems may start up and double-check that past problems have been repaired. If your inspector raises questions then you should know your insurance company will also. Check if there is an underground oil storage tank since many insurance companies won’t provide a policy for a home that has one.
Routine maintenance is going to be your responsibility as a homeowner and insurance companies don’t cover things that have gone wrong from lack of maintenance. It helps to know what these costs are going to be and factor these into the price of the home so you can make sure the home is well maintained.
Don’t wait until the last minute to factor in home insurance costs and contact your insurance agent before you put in a bid on the home. Check to see if the home qualifies and get an estimate of the premium. When you speak to an insurance professional early on, it will be a much smoother process. If you aren't going to be able to pay the premiums then you will need to look at a home that has premiums you can afford. You don’t want to wait until it’s too late to find this out.
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How Much Home Insurance Do You Need?
One of the biggest mistakes you can make when it comes to home coverage is not having enough home insurance. If a disaster does happen and you need to rebuild then it would be terrible to discover that you don’t actually have enough insurance to cover the costs.
Dwelling Coverage
Dwelling coverage should equal the replacement costs of your home, which is the amount of money it takes to build a replica of your home. However, calculating the replacement cost can be hard to estimate. You want to look at the square footage of your home and then multiply it by local construction costs. You can learn more about these costs by looking at construction websites or have your insurance agent look it up. You can also use an online calculator to get an estimate.
Once you have your own estimate you should also ask a professional for theirs. An expert insurance agent will know the local costs and can help you calculate this so you have enough coverage. You also need to check your replacement cost every few years since there are a number of factors that affect this. For example, there can be new building codes that were made after your home was built that now make it more expensive to rebuild. If you have remodeled your kitchen or added any additional structures or rooms, know that this also affects replacement costs.
Keep in mind there are rising costs for construction and building materials, especially if it’s a natural disaster that has destroyed your home and lowered the supply while increasing the demand. If your home has old and hard to replace features, this will also raise the cost.
Personal Property
A good question to ask yourself when you are determining how much coverage is needed is if you have lost everything, how much does it cost to get back on your feet? It can be very easy to underestimate how much you own. You buy things over time and lose sight of the value. If you underinsure personal property you may end up with a shock when your reimbursement check can’t cover things you need.
Liability Coverage
Most home insurance policies should have a minimum of $100,000 in liability coverage. However, you should have at least $300,000 and more if you can. Liability protection is one of the best options in the insurance industry so you should get as much as you can. While dogs are normally covered, it’s possible that your dog is not covered. If you have a dog whose breed has been noted by your insurance company, it won't be covered under insurance. Some high-risk dog breeds include pit bulls, Chows, Rottweilers, German shepherds, and wolf-dog hybrids.
Additional Living Expenses
With this part of your policy, the keyword is additional living costs. Many policies will use a percentage of the current extended dwelling coverage for a calculation, which is usually between 20% and 30%. If you have a larger family and your costs will be higher then you should ask your insurance agent how you can get more coverage.
Understanding Home Insurance Deductibles
Before your home coverages kick in, you will need to pay for your deductible. Choosing the right deductible is necessary for making sure you get the most out of your homeowner’s insurance policy.
Your deductible is the amount of money you pay out of pocket toward the loss or damages before the insurance company pays for the claim. You don’t pay the deductible to the insurance company just like a bill or premium and instead, it is subtracted from the amount claimed.
Usually Two Types of Deductibles
One is a percentage and the other is a dollar amount. Your deductible should be something you can reasonably afford. However, the higher your deductible, the lower the premium costs.
When picking a deductible, you need to balance the short-term cost that you can afford with the long-term cost of your premiums. The more you can afford in the short term, the more you will save long term on your premiums.
To Conclude
A standard home insurance policy will have four different home coverages you should be aware of. There are some things your policy won’t cover so you may need to add some additional home coverages depending on your financial needs.
Not only do you have to pay attention to the home coverages your policy covers but you also need to think about how much coverage you need. Figuring out how much coverage you need will depend on some different factors but it’s necessary in order to stay financially protected.