Home… it represents and means many things to us. It is a warm bed you do not want to get out of in the morning, it’s a cozy living room sofa where you enjoy sound of rain while drinking hot cocoa, it’s a smell of baked cookies around holidays and family gatherings, it’s peace, love and memories.
It would be devastating to lose something that is so dear to us. That is why properly insuring it will keep you sane and calm during the time of loss.
Home insurance is not just for home. It covers your belongings,claims against you shall you be liable for property damages or injuries to others and additional expenses you may incur due to a covered claim such as fire. However, it may possibly be one of the most complex personal policies out there due to the number of limitations and exclusions.
Like any kind of insurance, skimming on the limits or coverage and concentration on the price only is usually not a good idea.
Let’s go over main coverages that home insurance policies typically come standard as a package.
There are 6 major coverage parts of a Homeowners policy: Dwelling coverage (Coverage A), Other Structures coverage (Coverage B), Personal Property coverage (Coverage C), Loss of Use (Coverage D), Personal Liability (Coverage E) and Medical Payments (Coverage F).
- Dwelling (Coverage A) covers your house and all structures attached to it, such as garage or a deck. In order to get a proper limit for this coverage your agent or broker must ask questions like: the year the building was build, the square footage, how many bathrooms are there, what material is the roof made of, if the plumbing is galvanized or all copper and so on. Every insurance company has their way of estimating how much it will cost to rebuild your specific home including labor and material, as well as debris removal costs.
As you can understand the amount that will be calculated is pretty important. This is what insurance company will pay to rebuild your home from ground up. Always insure 100% of the estimated replacement cost. Even if your house was build a hundred years ago for $50,000 – it will be much more expensive to rebuild it today. Paying an extra premium is much easier than thousands of dollars out of your own pocket in case there is not enough coverage to rebuild after a full or even partial loss. Please, do not assume that if only, let’s say, kitchen was destroyed, the “total” limit of Coverage A will be more than enough. No. If you insure for depreciated value – that is what you will get – a depreciated value to fix your kitchen.
It is your responsibility, not insurance agent’s or insurance company’s, to obtain proper coverage; therefore, getting an estimate from a local contractor or builder who has knowledge and skills to provide you with accurate estimate of rebuilding costs is highly recommended. Ask for a current cost of construction and don’t forget to count the cost of removing debris. Generally it is less expensive to build the house from ground up rather than re-build it after a fire since there are additional costs associated with removing debris after the fire.
A few great points:
- Always add Extended Replacement Cost Coverage endorsement in order to make sure you will have enough to rebuild your property. This coverage provides additional stated percentage or specific dollar amount above the dwelling limits. It may be very useful in case of a widespread disaster, where the high demand for contractors, supplies and labor increases the cost of construction.
- You want to have Ordinance and Law Coverage also called “building code upgrade” coverage. This is another very important option that covers additional costs to repair or replace a dwelling to comply with the building codes and zoning laws in effect at the time of loss. These costs may otherwise be excluded by your policy. Meeting current building code requirement can add a significant cost to rebuilding your home.
- Another very important addition is an Inflation Guard coverage. If you wish to get price estimates of rebuilding your home every year and update your insurance accordingly – by all means, do that. Or you can have insurance company do that for you by having Inflation Guard option added. The amount of insurance will be automatically increased each year by a certain percentage to keep up with the rising prices of labor and materials.
- Other/Detached Structures (Coverage B) pretty self-explanatory: this coverage is for the detached buildings, such as a shed, detached garage or in-ground swimming pool. The limit is 10% of Coverage A. Let’s say your Coverage A is $200,000. You will have additional $20,000 for your detached structures. Sometimes automatic 10% is not sufficient, so make sure to increase it if needed.
- Personal Property (Coverage C) is for your personal belongings, as well as property of your guests. A few things to keep in mind:
- Coverage C is 50% of Coverage A
- It usually covers your belongings anywhere in the world up to 10% of Coverage A
- There are Maximum limits on certain types of personal property, like money, firearms, furs, art, jewelry and some other items. So, if you have some expensive jewelry or art pieces, you will want to schedule these articles.
- All Homeowner policies come with Actual Cash Value (ACV) replacement, which means your 3 year old TV, for example, will be replaced based on a depreciated value. Always add Replacement Cost endorsement in order to get replacement based on a “new” item value.
- Even though 50% of Coverage A may seem like a lot, always try to evaluate your contents – don’t just take what comes automatically, as it may not be enough.
- Loss of Use (Coverage D) also known as Additional living Expenses. This applies when your house is uninhabitable for the time it is being repaired or rebuilt and you have to live someplace else. This coverage will pay for any ADDITIONAL living expenses you incurred due to your need to relocate and live at some other place while the damages to your home are being fixed. For example, you spend a total of $5,000 per month on your mortgage, utilities and other items. You had to temporarily move to a hotel while your house is being repaired. Some of your expenses will stay the same (such as mortgage), some expenses may change, some may add up. Now your total monthly expense is at $6,600. Your Loss of Use coverage will pay the additional expense of $1,600 you incurred.
This coverage limit is usually up to 30% of Coverage A or for a specific duration of time (a year or two years).
- Personal Liability (Coverage E) pays for damages and injuries you have caused to others, including cost of legal defense. The event does not have to take place at your house- it can happen anywhere. On a golf course you hit your ball, it curves to the side and strikes another player in the head. Your child knocks your glass with red wine off the table and ruins neighbor’s carpet, which is valued at $4,000. Your dog bites a friend’s kid, who was teasing poor animal and would not stay away regardless how many time you warned him.
The bottom line? Make sure you have enough coverage. How much is enough/ imagine yourself in the situation where you get badly injured- how much do you think you may need to cover your medical bills, pain and suffering, lost wages and attorney costs? Also, think about your own “sue-ability” factor: are you making good money? Or studying to become a lawyer or a surgeon? You may want to protect your current or any future income, as well as your assets, so make sure you are not under insured.
The important addition in our day and age is an optional liability coverage called personal Injury. It is not meant for somebody’s physical injury, but rather emotional. For example, your teenager posts an unpleasant comment about a classmate, thus humiliating this person. This coverage is for false arrests, invasion or violation of privacy, slander and deformation of a character. Of course, by adding it to your insurance does not give you a license to write or say what you please. It will have exclusions for any intended acts, just like any other coverage.
- Medical Payments (Coverage F) is for people who get injured because of your activities on your property, as well as anywhere else. This coverage is considered to be as a goodwill gesture and designed to prevent lawsuits.
Deductibles- are a part of any insurance. On Homeowner policies the most common amount is $1,000. You can choose what you would be comfortable with paying out of pocket in case of an accident. The higher the out of pocket amount – the least expensive your policy becomes.
Last few points:
- Always go for a “Special” form. This form includes any cause of accident unless it is specifically excluded. Basic or Broad forms have a specific list of perils (causes of loss) you would be coveraged against. All other causes excluded.
- Read your policy carefully and ask questions.
- Homeowner insurance is not for maintenance- it is to help you get thru the accidents.
- Whenever you do some major remodeling – let your agent or broker know about it, so they can update your coverage accordingly.
- We live in California and must remember that Earthquake and Flood are EXCLUDED on Homeowner policies. They can be purchased separately as earthquake Insurance and Flood Insurance.
- Worker’s Compensation is typically included in California homeowner policies regardless of whether you do or do not have any employees. The guy that comes to mow your lawn and cut your trees; the person who takes care of your swimming pool; the nice ladies that clean your house…They are your “occasional” employees and are required to have their own Worker’s Compensation, but in case they do not have it and get injured while working for you – you have that part covered. To make sure claims won’t happen – always hire licensed and insured contractors with their own Worker’ Compensation insurance.
- Umbrella insurance is another way to make sure the possible gaps are covered. As a matter of fact it provides an extra layer of protection on top of your all personal liability coverage for auto, home, motorcycle and so on.
Home is where love resides, memories are created, friends always belong to and families are forever. Cherish and protect it well with the right coverage.