There are many critical choices to make when purchasing homeowners insurance. How much should your deductible be? Do you need endorsements? How do you know how much home insurance is enough? Making the wrong decisions about your policy could leave you without coverage or otherwise under-funded for your claims. In this post, we will review the coverage available in two of the most commonly purchased home insurance policies – the HO-3 and HO-5. We’ll also help you determine if you have enough coverage to protect you against a future claim.
Coverage A – Dwelling
Your home keeps you safe, and your Dwelling insurance keeps your home safe. While there may be little you can do to prevent a major loss, having the right Dwelling limits can ensure you are prepared if disaster strikes. Both the HO-3 and HO-5 home insurance policies include ‘open peril’ coverage for your home’s structure, meaning you are protected against losses caused by all types of risks except for the ones explicitly excluded in your policy.
So long as you have adequate limits for your dwelling, any claims you make should cost you little more than a deductible, which is usually between $500 and $2,000. If you are underinsured, however, you are at risk of running out of money while rebuilding. You might even lose funding for partial losses due to the ‘Co-Insurance Rule,’ which allows insurers to penalize your coverage for partial losses to the extent that you are underinsured for a total loss.
As one of the most expensive assets most people own, all homes should be insured – not just the ones that necessitate coverage due to the requirements of a mortgage lender. To calculate your coverage needs, we recommend assessing the cost of cleaning up after a disaster and rebuilding a home of similar size and construction quality. For help estimating your Dwelling coverage needs, contact our office today.
Coverage B – Other Structures
What other structures on your property necessitate insurance protection? Do you have a freestanding garage or tool shed? Do you have a fence, patio, or perhaps a gazebo? The ‘Other Structures’ coverage on your insurance policy extends to these types of independent structures, providing coverage against a wide range of hazards. Insurance companies typically place default limits on additional structures at 10 percent of your Dwelling coverage, although additional coverage is available for those with multiple structures on their property.
Coverage C – Personal Belongings
Anything you own can be taken from you or destroyed under ill-fated circumstances. Thieves break into cars and burglarize homes, and news reports are filled with stories of families who have lost everything in a fire, storm, or some other unfortunate event. If you are the victim of a major loss, your Personal Belongings coverage can reimburse you, allowing you to begin replacing the furniture, clothes, home goods, and other items you lost.
To expedite the claims process and give you a more accurate estimate of your coverage needs, we recommend taking an inventory of your possessions, updating it regularly, and storing it somewhere safe. Several apps are available to assist in maintaining a home inventory and also make it easier to declare losses for a claim. In most cases, insurance companies provide Personal Belongings coverage with default limits between 50 and 80 percent of the Dwelling limits, but your actual coverage needs may vary.
It is worth noting that if you have an HO-5 insurance policy, your home’s contents are covered against any hazard that is not excluded in writing. HO-3 policy-holders, however, have more limited coverage only for the specific perils named in the policy. Talk to an agent here at Stauffer-Klug Insurance for help determining which coverage is right for you.
Coverage D – Loss of Use
The next section of your insurance policy addresses coverage for the excess expenses you incur while seeking temporary shelter. Often, homeowners are forced into a hotel or even an apartment while their homes are rebuilt or repaired after a disaster. During that time, the cost of rent, hotel fees, Laundromats, and meals can add up to major expenses that exceed the usual cost of living. Loss of Use coverage can reimburse you for these extra costs up to the limits of your policy, which are usually equal to approximately 20 percent of your Dwelling coverage.
Coverage E – Personal Liability
Your risk of being sued increases when you purchase a home and as you add members to your household. Personal liability coverage helps protect you against the financial responsibility of a third-party’s accidental injuries or property damage when you are at-fault. This coverage is a standard part of most insurance policies, but limits can vary depending on how much coverage you select.
How Much Personal Liability Coverage Do You Need?
When choosing limits for your policy, it is important first to assess your potential risk of loss. How much would you be responsible for if your dog bites a child or another pet in your neighborhood? According to the Insurance Information Institute, the average cost of a dog bite claim was over $37,000 in 2015, and Wisconsin was number eight for the number of dog-related claims filed that same year.
Of course, injury and property damage claims can climb much higher than that. Say for example that you had a few friends over for a Packer party and one of your guests had a few too many drinks. Before you realize it, he leaves, only to get into a terrible car accident. The liability of such an accident could easily reach the six-figure range, and you as the host can be held liable. That is why we here at Stauffer-Klug Insurance recommend purchasing high-limit personal liability coverage that will adequately shield your income and assets in the event of an accident. In most cases, and with only a few exceptions for events like boat and car accidents, the personal liability coverage on your home insurance follows you and the members of your household wherever you may go.
Many homeowners choose coverage amounts between $100,000 and $300,000, although a member of our team will be happy to help you determine how much coverage is right for you.
Coverage F – Medical Payments
When someone is injured at your home or somewhere on your property, medical payments coverage can help pay for the medical bills even if you are not legally at-fault for the accident. This coverage typically comes with low limits, usually between $1,000 and $5,000. It does not eliminate your potential liability, but it may be just enough to pay for some stitches or a few x-rays and possibly even deter a lawsuit.
A standard home insurance policy comes with many different types of coverage, but they sometimes fall short of meeting a homeowner’s needs. Endorsements build upon the broad coverage of a home insurance policy, providing additional coverage and protection against specific types of losses. Examples of common home insurance endorsements include:
- Inflation guard endorsement
- Scheduled coverage for expensive belongings
- Water backup and sewer endorsement
- Home business endorsement
- Replacement value coverage for personal belongings
As a policy-holder, you have the option to pick and choose which endorsements you want and which ones you prefer to decline. For help determining which endorsements may be right for you, contact an agent here at Stauffer-Klug insurance today.
Beyond Home Insurance
Some homeowners need additional liability coverage beyond the protection provided by a home insurance policy. This is especially true for individuals with significant assets or the potential to earn wages in the future. Umbrella insurance is supplemental liability coverage that extends the coverage in your home insurance policy, as well as the primary liability coverage in other policies, such as your auto insurance.
Umbrella policies generally come with at least $1 million of additional liability coverage, although it is possible to purchase much higher limits. Talk to an agent at our office today about how you may be able to better protect your income and assets with an umbrella policy for approximately $200 per year or less.