Chances are your home is one of the most valuable assets you own. Protecting it is essential, but how much home insurance is enough to meet your needs? Sure, you’ll need coverage to rebuild or repair your house if it is damaged or destroyed, but what about coverage for your belongings, temporary displacement, and other losses? In this post, we will break down the various types of coverage that are typically included in two of the most frequently purchased policies – the HO-3 and HO-5.
Coverage A – Dwelling
Dwelling coverage (Coverage A) is one of the most important types of coverage on your policy, as it helps fund the rebuilding of your home if it is partially damaged or destroyed. Both the HO-3 and HO-5 home insurance policies have open peril coverage for the structure of your house, meaning it is insured against any and all types of hazards except for the ones specifically excluded in your policy. For many homeowners, this provides peace of mind knowing that nearly anything is covered.
The limits you choose in Coverage A may also determine the default limits for other types of coverage on your home insurance policy, although this may vary depending on the standard practices of your insurer. Also, carrying too little coverage for your home could subject you to penalties when you file claims for partial losses. This is known as the ‘Co-Insurance Rule,’ and insurers may enforce it in proportion to the amount you are under-insured.
To avoid penalties and assure you have enough coverage to rebuild your home and protect your assets, we recommend working with an agent here at Smith Insurance and Financial Services. Our team is skilled in helping local Wisconsin residents assess their coverage needs based on local construction estimates and the average cost of cleaning up debris after a disaster. We will be happy to help you calculate the coverage you would need to rebuild a home of similar size and with similar materials and finishes.
Coverage B – Other Structures
In the same way that Coverage A protects your home’s structure, Coverage B helps ensure that you can rebuild your fence if a car plows into your backyard or replace your detached garage if it catches fire overnight. Damages to these structures can add up quickly, resulting in thousands of dollars in damages. Fortunately, most insures include default coverage for Other Structures equal to about 10 percent of your Coverage A limit.
Coverage C – Personal Belongings
Imagine coming home from vacation to find your home has been burglarized. Think of how devastating it might be to lose everything you own in a house fire. Though there are endless circumstances that could lead to the loss of your possessions, Coverage C in your home insurance can help you begin picking up the pieces so that you can start over, fresh and new.
Personal belongings coverage generally reimburses you based on the actual cash value of your items. To insure them for their replacement value, you’ll need an added endorsement to your policy. Also, you should note that HO-3 and HO-5 policies cover different types of hazards. For HO-3, home contents are only covered for damages caused by the events listed in the policy. For HO-5, home contents are covered for damages caused by all scenarios except for the exclusions listed in the policy.
When you choose your Coverage A limits, your insurer may automatically set your Personal Belongings coverage limit to an amount between 50 and 80 percent of your Dwelling coverage. However, we recommend taking inventory of your home to ensure you are adequately protected. Several apps are available to help you store and maintain a home inventory. With this data stored digitally, you can also safely and easily access it in the event you need to declare a loss.
Coverage D – Loss of Use
Coverage D helps ensure you don’t have to dip into your savings to pay for extra expenses if your home is uninhabitable. Repairs can take days or weeks. You might be forced to live in a hotel, use a laundry service, and eat your meals out, all of which can rapidly drive up the cost of your living expenses. If you have to rebuild your home completely, the expenses could go much higher while you lease a short-term apartment and still attempt to make your mortgage payments. In these scenarios, Loss of Use Coverage – usually equal to 20 percent of your Dwelling coverage – can minimize your out-of-pocket costs.
Coverage E – Personal Liability
The next section of your home insurance policy probably has nothing to do with your home at all. Instead, this is the section that provides coverage for third-party injuries and property damages when you or someone in your household is at-fault. While there are some limitations – particularly for damages caused by car and boat accidents – personal liability generally provides broad coverage that follows you beyond the four walls of your home wherever you may go.
As an independent insurance agency in Wisconsin, we have witnessed first-hand the detriment a lawsuit can cause to a family that is underinsured. That is why we emphasize having adequate coverage to protect your income and assets against the possibility of litigation. You cannot prevent every accident, but you can take steps to safeguard your family against the financial consequences they incur.
Beware that liability damages can add up very quickly, and often too far more than a homeowner might expect. For example, dog bite injuries are among the most frequently filed claims in Wisconsin, accounting for nearly one-third of all claims. When a pet bites a person or another pet, the average claim cost currently totals more than $37,000. Unless you have adequate insurance protection, you may have to pay the damages out-of-pocket.
Coverage F – Medical Payments
When accidents happen in your home, medical payments coverage ensures the injured guest gets the medical attention they need. This coverage is not contingent upon your liability; rather it automatically pays for medical bills up to the limits within your policy regardless of fault. Typically, medical payments coverage comes with limits between $1,000 and $5,000, which may be enough to cover a deductible, co-pays, or the out-of-pocket costs of a doctor’s office visit.
Optional Coverage – Endorsements
You can modify and build upon the standard coverage in home insurance by adding endorsements to your policy. Endorsements are optional protection designed for specific coverage needs and interests. For example, many people prefer to be compensated for damaged belongings based on the cost of replacing them – not the depreciated value of the asset. A replacement cost endorsement can provide that coverage, making it easier to start over after a major loss.
Some of the more common home insurance endorsements include:
- Inflation guard protection
- Home business coverage
- Water backup and sewer coverage
- Scheduled coverage for high-value assets
For help determining which endorsements could better protect you against a loss, contact one of our team members today.
Beyond Home Insurance
In addition to your home insurance, umbrella insurance can provide broad backup protection if the limits on your personal liability coverage fall short of your financial responsibility in a lawsuit. When damages exceed the high limits on your primary coverage, an umbrella policy can provide an additional $1 million or more in protection – all for an average of just $200 per year or less.
To talk with an agent about how an umbrella policy could better protect your income and assets against at-fault accidents and litigation, contact our office today.