Home insurance can be confusing when you’ve bought a new home or when you’ve been a homeowner for 40 years. One thing to remember: you need to insure your home for the cost to replace it, not the market or real estate value. What that means is that the cost of the land or what school system your house is in, isn’t a factor- but working around existing trees and power lines is a factor!
Another thing to remember is that your home insurance should cover a lot more than just damage to your home.
Ask an insurance professional for specific limits, but generally, there are many more coverages within your policy limits, such as:
· Your personal property
· Additional structures on your property- like a pool, fence, or garage
· Additional living expenses if you’re unable to live at home while your home is being repaired from its loss
· Liability insurance which protects you from a lawsuit if you damaged or injured someone else or their property
· Medical payments for people injured on your property
Some other coverages that might be covered by your home insurance policy are:
· Fallen trees
· Sinkhole coverage
· Identity Fraud
· Debris removal
· Food spoilage from power outages
· Mold, Fungi, Dry Rot
· Replacement of trees, plants, or shrubs
· Sewers & Drain back-up
Keep in mind that as broad is your home insurance might be there are many limits to the policy as well. Be sure to speak with your insurance agent about the limits to your jewelry, guns, collectible items, silverware, computer equipment, or other valuable items to make sure that you have enough coverage! Likewise, you might want to talk to your insurance agent about increasing your liability limit by adding on an umbrella policy. This will more adequately protect your assets if you did have a potential lawsuit.
Generally speaking, your home insurance will not automatically cover earthquake or flood. You will most likely have to purchase a separate policy if you would like that coverage.
If you have a mortgage on your home, your bank will usually require home insurance. As I mentioned earlier, you do not need to insure your home for the mortgage amount or the amount mandated by your bank! Most of the time, you will need more coverage than their mandated limit. Their limits are normally at a minimum coverage to just protect the home itself, which is the primary interest of the bank. As always, speak with your insurance professional to discuss their estimated replacement cost for your home. But remember that it’s always up to you as the homeowner to make sure that you have enough coverage on your home.
What are the types of Home Policies?
There are several home polices. Each form has a different coverage to it. Generally speaking, here are the most common types of home policies available:
- The home is covered for all disaster types except those specifically excluded by the policy.
- Personal property is covered against loss exposures named in the policy.
- Insurance policy for a tenant or renter
- Covers personal property for the loss exposures listed in the policy and includes liability coverage. It has no coverage for the dwelling.
- At William Blount & Associates, this is our most common home policy form.
- Premier homeowners policy, generally offered to homes that are well-maintained.
- It’s very much like the HO-3 policy, but the personal property is also against all loss exposures except those specifically excluded.
- Insurance policy for condominium owners
- Provides contents coverage, liability coverage, and some coverage to the condo itself. It’s very important to consult with your condo association to determine what they cover and then make sure your condo policy bridges the gap in coverage.
What are the Rating Factors for my Home Insurance?
There are many different factors that help determine how much you pay for your home insurance. Some of the biggest factors that determine your insurance premium are: the age of the house, the building materials used, location, size, distance to fire station and hydrant, your credit history, your claims history, and many others
What about all of My Stuff?
There can be a big difference in coverage for your belongings! The main thing to check your home policy for is to see if your property will be covered for “Actual Cash Value” or “Replacement Cost.” Actual Cash Value means that the insurance policy will cover your belonging at full replacement value, but then remove the cost for depreciation. Whereas Replacement Cost means that the insurance company will pay for the full replacement cost of your belongings. Replacement Cost gives you much more protection and the better option! For example, if your 10 year old TV burned in a house fire, if you had an Actual Cash Value policy, you would get a check for the value of a similar TV minus the depreciation for its age. On the flip side, if you had a Replacement Cost policy, you would get a check for the value of a brand new TV of like, kind, and quality.
What’s this I see about Additional Replacement Cost?
Many insurance companies have an endorsement to your home that goes above and beyond the value it’s insured at. This endorsement is designed to protect you after a disaster. The main time this coverage would be very valuable is if there was a major disaster and the demand for contractors or building materials caused the normal cost of reconstruction to increase. There are two main options for this coverage.
1. Guaranteed Replacement Cost- This option is the less common option available and it’s tougher to find a company that offers this coverage. It will pay for the Complete Cost of replacing or repairing a house that has been damaged or needs to be completely rebuilt, regardless of the cost.
2. Additional Replacement Cost- This option is the more common of the two. It will pay to a specified limit above the policy to replace or repair the house; usually the limits available are either 25% or 50%. Meaning, your home may have a coverage limit of $250,000, but if you have the Additional Replacement Cost endorsement for 50% and your home was destroyed, you would have up to an extra $125,000 to help rebuild your home.
There are a couple stipulations that are used to make sure you’re adequately insuring your house, so speak with your insurance professional to make sure you qualify for this endorsement!
Should I have a Home Inventory?
It is vital to have an accurate home inventory list. The two main reasons are to make sure you have enough personal property coverage to protect your belongings in the event of a loss. Also, it simplifies the claims process if you do have a loss. It’s very difficult to re-account for everything you owned, particularly after a traumatic experience like a home loss.
Check out our bog on home inventories to learn more information!
Do I really need to Read my Home Policy? YES!
Your policy may renew each and every year, but if you never read your policy, you are leaving yourself vulnerable. At your renewal, you home insurance company has the opportunity to change the language of your policy. You may not know if there have been any changes to your policy that might affect you if you do not read over your policy every year. There are several big named insurance companies that are now requiring a percentage for deductible at the renewal of their home policies. For instance, if you have a 1% deductible and your home is insured at $300,000, your deductible would be $3,000.
Or you might be the consumer that re-shops their insurance every few years, you might be not be aware of what you’re leaving behind with your old insurance company that may be very valuable if you do not read your policy thoroughly!