As with any properly constructed policy Homeowners insurance should be customized to fit your lifestyle and evolve with you and your home
Home 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 the 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 so dear to us. That is why properly insuring your property will keep you sane and calm during loss.
Homeowners insurance is not just for the house. It covers your belongings, claims against you in case you are found 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 with any insurance, skimming on the limits or coverage in Homeowners Insurance and concentrating on the price only is usually not a good idea.
Let’s review the primary coverages that typically come standard as a package in Homeowners insurance policies.
There are six 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 (Coverage A)
Dwelling coverage (Coverage A) protects your house and all structures attached to it, such as a garage or a deck. To get a proper limit for this coverage, your agent or broker must ask questions like the year the building was built, the square footage, how many bathrooms are there, what material the roof is made of if the plumbing is galvanized or all copper, and so on. Every insurance company has its own way of estimating how much it will cost to rebuild your home, including labor, material, and debris removal costs.
As you can see, the amount that will be calculated is pretty important. This is the maximum the insurance company will pay to rebuild your home from the ground up. Always insure for up to 100% of the estimated replacement cost. Even if your house was built 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 pocket if there is insufficient coverage to rebuild after a full or even partial loss. Please, do not assume that if only, let’s say, the 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.
You are responsible for obtaining proper Homeowners Insurance coverage, not the insurance agent or company. So, getting an estimate from a local contractor or builder with knowledge of the area and skills is recommended to make sure you select a high enough limit for Dwelling coverage. Ask for a current construction cost, and don’t forget to count the cost of removing debris. Generally, building a house from the ground up is less expensive than rebuilding it after a loss like a fire, for example. There will be additional costs associated with removing debris after the loss.
A few great points
Extended Replacement Cost Coverage
Always add an Extended Replacement Cost Coverage endorsement to your Homeowners Insurance to ensure you have enough to rebuild your property. This coverage provides an additional stated percentage or specific dollar amount above the dwelling limits listed on the policy. It may be beneficial in case of a widespread disaster, where the high demand for contractors, supplies, and labor increases the cost of construction.
Ordinance and Law Coverage
You want to include Ordinance and Law Coverage, also called Building Code Upgrade coverage. This is another very important option in a Homeowners Insurance that covers additional costs to repair or replace a dwelling to comply with the local building codes and zoning laws in effect at the time of loss. Your policy may otherwise exclude these costs. Meeting current building code requirements can add a significant cost to rebuilding your home.
Inflation Guard Coverage
Another very important addition is Inflation Guard coverage. If you wish to get price estimates for rebuilding your home every year and update your Homeowners policy accordingly – by all means, do that. Or you can have the insurance company automatically raise your Dwelling limit at every renewal. That is the benefit of the Inflation Guard coverage. The amount of insurance will be automatically increased each year by a certain percentage to keep up with the rising labor and materials prices.
Other/Detached Structures (Coverage B)
Other/Detached Structures (Coverage B) is pretty self-explanatory: this coverage is for detached structures, 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 an 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)
Personal Property (Coverage C) is for your personal belongings. Here are a few things to keep in mind:
- In Homeowners insurance 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, etc. So, if you have some expensive jewelry or art pieces, you will want to schedule these articles.
- All Homeowners insurance 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 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 possessions. Don’t just agree to the limit that was calculated automatically, as it may not be enough.
Loss of Use (Coverage D) or Additional Living Expenses
Loss of Use (Coverage D), also known as Additional Living Expenses. This applies when your house is being repaired or rebuilt because of the covered loss, and you must temporarily move out as it is uninhabitable. 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 $5,000 monthly on your mortgage, utilities, and other items. You had to temporarily move to a hotel while your house was being repaired. Some of your expenses will stay the same (such as a mortgage), some may change, and some may add up. Due to this relocation, your total monthly spending is t $6,600. Your Loss of Use coverage will pay the additional $1,600 you incurred.
This coverage limit is usually up to 30% of Coverage A or for a specific duration of time (a year, for example).
Personal Liability (Coverage E)
Personal Liability (Coverage E) pays for damages and injuries you have caused to others, including the cost of legal defense. The incident does not have to take place at your house to be covered. Liability coverage will apply to accidents outside of your four walls. On a golf course, you hit your ball, which curves to the side and strikes another player in the head. Your child knocks your glass of red wine off the table and ruins your neighbor’s carpet, valued at $4,000. Your dog bites a friend’s kid, who was teasing the poor animal and would not stay away regardless of how many times you warned him.
The bottom line? Make sure you have enough coverage. How much is enough? Imagine yourself in a situation where you get badly injured. How much do you need to cover your medical bills, pain and suffering, lost wages, and attorney costs? Also, consider your “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 future income and assets, so ensure you are not underinsured.
Personal Injury Coverage
An 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, 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)
Medical Payments (Coverage F) is for your guests who get injured on your property. But, just like Liability coverage, Medical Payments could be applicable even if the incident occurred outside your house. This coverage is considered to be a goodwill gesture and is designed to prevent lawsuits.
Deductibles are a part of almost any insurance. In Homeowners policies, the most common amount is $1,000. You can choose what you would be comfortable paying out of pocket in case of an accident. The higher the Deductible, your 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 covered against. All other causes are 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 damages related to earthquakes and floods are EXCLUDED from Homeowner policies. Such coverage can be purchased separately as Earthquake Insurance and Flood Insurance.
- Worker’s Compensation is typically included in California Homeowners 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 lovely ladies that clean your house…They are your “occasional” employees and should have their own insurance. But, just in case they 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’s 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 all your personal liability coverage for auto, home, motorcycle, and so on.
Home is where love resides, memories are created, friends always belong and families are forever. Cherish and protect it well with the right coverage.