When you purchase a home insurance policy, you are choosing insurance that covers much more than your house and mortgage. The most commonly purchased home insurance policies, the HO-3 and HO-5, also cover your personal belongings, the cost of temporary living expenses, liability, and more. Though your home is unique, there are effective ways of calculating the amount of coverage you might need in the event of an accident or loss. In this post, we will help you better understand how much home insurance is enough to fit your needs.
Coverage A – Dwelling
When you think of home insurance, you probably think of your Dwelling coverage first. Both the HO-3 and HO-5 insurance policies provide extensive coverage for the structure of your house, insuring it against all types of risks except the few that are excluded by name in your policy. When adequately insured, policy-holders can rest assured that they will have the funds to repair or rebuild their homes after a covered event. Without the right coverage, you risk falling short of the funds needed to pay for both partial and total loss claims.
Of course, the key is figuring out how much home insurance is enough to insure your house sufficiently. It might come as a surprise that several seemingly important factors do not have much influence on your coverage needs. Examples include your land and lot value, the price you paid for your home, and the balance on your mortgage. You cannot (and need not) insure the land you build your house on, and the price you paid for your home is in no way associated with the cost of rebuilding it. Also, lenders require that you carry a minimum amount of home insurance, but simply insuring your home for the mortgage value is not enough to protect your financial interest in the property.
Instead, we here at Lillie-Couch Insurance help our clients calculate coverage needs based on a few simple, but important factors. These include:
- Local construction costs
- The size of your home
- The materials, fixtures, and finishes used in your home
- The cost to clean-up your property after a disaster
Once we come to an accurate estimate of your coverage needs, we can also help you select your deductible. Most insurers offer deductibles that range from $500 to $2,000. We recommend choosing the highest amount for which you feel comfortable paying in the event of an unexpected loss. Higher deductibles can contribute to cost savings in annual premiums, but you should never choose an amount outside your realm of affordability.
Coverage B – Other Structures
Once you select your Dwelling limit, your insurer may create default limits for other types of coverage on your policy, including your ‘Other Structures’ coverage. This is coverage for structures on your home that are not part of your primary home’s structure. Examples may include your fence, pergola, swimming pool, detached garage, pole barn, or driveway. In most cases, the limit for Other Structures is about 10 percent of your Dwelling coverage limit, although additional coverage may be available when necessary.
Coverage C – Personal Belongings
Personal Belongings include all of your possessions, including those that are not stored inside your home. Coverage C typically reimburses you for damage or theft of your belongings up to the limits of your policy, which are usually between 50 and 80 percent of your Dwelling limit. Unlike Coverage A, however, HO-3 policies only provide ‘named peril’ coverage for personal belongings. That means they are only covered for damages caused by events named in your policy. If you have an HO-5 policy, however, all risks are covered except the ones explicitly excluded in your policy.
Keep in mind that standard Personal Belongings coverage reimburses you for the actual cash value of your items, although you can add an endorsement to your policy that increases your compensation to replacement value. Also, some categories of items may be subject to additional limitations.
We recommend recording an inventory of your personal belongings and storing it safely online or somewhere other than your home. This simplifies the claims process after a loss and also helps you calculate your actual coverage needs. An agent at our office will be happy to assist in estimating the value of your belongings and scheduling additional coverage for high-value items that exceed the limits in your policy.
Loss of Use (Coverage D)
If you have to leave your home due to a covered event, your cost of living could quickly rise. Loss of Use coverage helps reimburse you for the added cost of renting an apartment or staying in a hotel and eating meals at a restaurant while your home is rebuilt or repaired. Most insurers provide default Loss of Use coverage worth up to 20 percent of your Dwelling coverage limit.
A standard home insurance policy covers third-party injuries and property damages when you are at-fault for an accident. This could include an accident that occurs in your home or one that you or a member of your household is responsible for causing away from your home. In fact, personal liability coverage follows you nearly anywhere you go with certain exceptions for events like boat or auto accidents.
As a Wisconsin independent insurance agency, we know first-hand the broad scope of damages covered by insurers. Often, homeowners are sued for injuries or damages they did not cause directly, yet they are legally responsible. It could be a dog that bites a child or another pet during a visit to the dog park. Depending on the extent of the injuries, a homeowner could be responsible for tens or even hundreds of thousands of dollars in damages.
That is why we here at Lillie-Couch Insurance recommend purchasing high-limit personal liability coverage that will protect your income and assets against a potential lawsuit. Many Clear Lake area homeowners choose high-limits – usually between $100,000 and $300,000 at a minimum. For help determining how much coverage may be right for you, contact our office today.
Medical payments coverage assures your house guests get proper medical care when they are injured on your property even if you were not at-fault for the accident. Coverage is usually capped between $1,000 and $5,000 – enough to perhaps cover an emergency room visit or a health insurance deductible.
A typical home insurance policy contains only the coverage that the average homeowner needs, but one size does not fit all. While standardized coverage helps keep premiums low, it could ultimately cost a homeowner after a disaster or other loss. That is why we recommend personalizing your policy with endorsements that modify the provisions of your policy according to your individual risk exposures and needs. This could include:
- Inflation guard to protect the value of your dwelling coverage
- Scheduled coverage to protect high-value possessions
- Personal property replacement cost endorsement
- Home business endorsement
- Water backup and sewer endorsement
For help determining which endorsements could better enhance your coverage, contact our office today.
Beyond Home Insurance
A well-constructed home insurance policy can protect your home and the things you own, but even high-limit liability coverage may not be enough to prevent a major financial loss after a lawsuit. When judgments reach hundreds of thousands or even millions of dollars, you may be personally responsible for paying any damages that exceed the limits in your policy.
That is why we recommend all homeowners consider adding an umbrella policy to their insurance portfolios. At an average of just $200 per year or less, umbrella insurance is an affordable way to thwart the financial effects of litigation. Most umbrella policies provide a minimum of $1 million of supplemental liability coverage, although higher limits are available for those who need it. For more information about umbrella insurance or to find out if it could benefit you, contact the office here at Lillie-Couch Insurance today.