How much is too much? How much is enough?
If you are preparing to buy a home you should know that you’ll need adequate insurance to cover the house and all your belongings in it. The peace of mind knowing you have insurance coverage in case of theft, fire or some unexpected accidents will be quite valuable in helping you rest at night. The question is: just how much insurance do you need? We can help you understand the basic coverages as well as “add ons” to your policy that will help you determine exactly what you need.
Use this quick outline of coverage typically included in a homeowners policy. There are also some other considerations based on where your location and what you actually own.
The 6 Basic Coverages in a Homeowners Policy:
1. The Dwelling
This coverage will pay to rebuild or repair the house in the event it is damaged by a covered loss. Typically this covers fire, wind, hail, lightning and even vandalism.
How Much Should You Have: This is determined by the estimated costs to actually rebuild the house. The Market value of your home does not impact this. When you apply for a mortgage, the lender likely wil require specific dwelling coverage options, limits and even specify deductible amounts.
2. Other Structures
If you have a detached garage, a storage shed or a fence, these kinds of structures are covered by the ‘ Other Structures ‘ portion of the policy.
In most cases, most policies cover detached structures at a rate of approximately ten percent of the amount of insurance you have on the structure of the house. Depending on what other structures you have on your property, it may be wise to consider increasing this percentage.
3. Personal Property
Personal property covers items like furniture, clothing and kitchen items such as the refrigerator or oven, should they be damaged or destroyed by a covered loss.
It’s completely up to you as the policy owner to decide if you want the actual cash value personal property coverage which is generally included in a homeowner’s policy, or if you prefer just the replacement cost coverage. Either of these are subject to applicable policy limits and deductibles. It is common for most home insurance companies to set the personal property limit somewhere between 50% to 70% of the dwelling coverage. It will be necessary to determine the total value of your possessions in order to decide if this default amount is adequate for your needs. One way to help accurately estimate necessary personal property coverage is to take an accurate inventory of all items you own, and assess the value.
4. Loss of Use
In the event that you are not able or allowed to live in your home as a result of a covered loss, this important part of the policy will provide additional living expenses while your home is being restored, to help cover things like hotel/motel rooms, dining, etc.
Loss of use coverage is usually based off of your dwelling coverage, calculated by using 20% to 30% of the dwelling coverage limit.
5. Personal Liability
This helps protect you personally in the event that you or any member of your household are found to be responsible for causing bodily injury or property damage to others.
It is common for a homeowners insurance policy to provide a minimum of $100,000 in personal liability coverage. This means the insurance company can pay up to that amount in total to injured persons per occurrence. Should you feel you need more protection, higher limits are available. Another option is to purchase an umbrella or excess liability policy if you feel additional liability coverage is necessary. One suggested “rule of thumb” is that you should have adequate liability insurance to cover the total value of all your at-risk assets. Things such as vehicles, money in bank accounts and even some types of investments could all be at risk if someone sues you and you don’t have sufficient personal liability insurance.
6. Medical Payments
This part of the policy helps pay medical bills for someone visiting your home that is accidentally injured while on your property. The insurance policy only pays up to the policy limits shown in your policy for covered claims. The policy limits actually indicate the amount of homeowners insurance you purchase and are typically found in the declarations page of your policy. In the event that you incur damages greater than your policy limits, you will be responsible for the remainder.
Typically a homeowners insurance policy will provide a minimum amount of $1,000 coverage, per person. Greater amounts of coverage may also be available.
There are a few common types of “add-on” coverages you might consider purchasing based on what your individual needs are:
Additional Replacement Cost Coverage: This coverage can provide an additional amount beyond your dwelling coverage limit to help cover repairs or rebuilding of your home should the dwelling coverage on your home be inadequate to cover the cost to repair or rebuild after a covered loss.
Personal Property Coverage Replacement: This provides coverage for personal property losses based on the cost to replace the item at the time of the loss, with no deduction for depreciation.
Special Personal Property Coverage: This coverage for personal property or contents can provide broader protection for your possessions in the event of a covered loss. It can cover your personal property in more situations than what is covered in the homeowners policy.
Homeowners insurance can seem very complex, but it can be much simpler to understand when we help you break it down by specific types of coverage. Always remember that not all homeowners policies are identical, so you want to make sure you understand what is and what is not covered in an insurance policy before you purchase it.
The information in this article comes from one of our trusted carriers, Travelers Insurance. To learn more about homeowners insurance products, call us to get a quote or ask more questions.
Everyone at the Liveoak Agency is here to make your insurance selection and purchase process as easy as possible. Call us for a policy review of your insurance today!