Homeowners insurance protects what may be the biggest investment of your life: your residence. Having enough coverage is crucial in the event of a disaster like a fire.
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But how do you know how much homeowners insurance you need? The key is to review each standard coverage in a policy, adjust the amounts as needed, and then consider additional coverage to plug the big holes. that’s how it’s done.
choosing the right home coverage
“Dwelling” essentially means the structure of your home. the insurer will pay to rebuild the house if it is destroyed, or make repairs, after problems like fire, hail, and lightning.
Important: Rebuilding and repair costs are paid up to the limit of your coverage. If your home didn’t have enough insurance, you won’t get enough insurance money to completely rebuild it.
standard housing coverage
Dwelling coverage should be based on the cost to rebuild the home in your area, based on local construction and material costs. Unless you have a builder in the family, you may not know this number, but your home insurance company can provide you with an estimate.
Dwelling coverage limits should be updated regularly, annually if necessary, to reflect changes in local labor and material costs.
Currently, standard homeowners insurance policies will cover the structure of the home for any problems, except for damage, which is specifically excluded. these exclusions are listed in the policy and typically include flood, earthquake, nuclear hazards, mold, and other issues.
buy better home coverage
Having enough homeowners coverage to rebuild your home is the foundation of a good homeowners insurance policy. but there are times when even the “right” amount of coverage may not be enough. for example, after widespread disasters, especially such as a tornado, the cost of materials and labor can skyrocket due to demand. that’s where coverage that allows wiggle room comes in handy.
Extended replacement cost: Some (but not all) home insurance companies offer an extended replacement cost. this feature can provide 10% to 50% or more of additional coverage to absorb increased costs. pure, for example, provides an additional 100% for extended replacement coverage on its high value home policies.
Insurers that offer “extended replacement cost” include:
- financial country
- series insurance
- barn insurance
- qbe insurance
- acuity, a mutual insurance company.
- central mutual
- series insurance
- the hanover
- at the national level
- owned by palisades & sinister
- west bend mutual insurance
- Flood insurance is available through FEMA and private flood insurance companies.
- Many homeowners insurers offer earthquake insurance. In California, many insurers offer policies from the California Earthquake Authority.
- In some coastal areas, such as the Texas coast, homeowners must purchase windstorm coverage separately from homeowners insurance.
- greater coverage for landscaping
- service line coverage
- increased coverage for ordinances or laws (when rebuilding creates the need to comply with a new law, such as new building codes)
- inflation protector (keeps home coverage up to date with rebuilding costs)
- bed bug coverage
- home day care coverage
- home systems failure coverage
- water backflow and sump overflow
Guaranteed Replacement Cost coverage is even better because it pays to rebuild your home no matter how much construction costs have increased.
Insurers that offer “guaranteed replacement cost” (and often extended replacement cost as well) include:
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availability of guaranteed extended replacement cost coverage may vary by company, state, policy type, and even by home type.
choosing the right content coverage
Your contents coverage reimburses you for the contents of your home that are damaged or destroyed. this encompasses your furniture, decorations, clothing, electronics, toys, and appliances. A good way to keep track of your stuff and determine how much content coverage you need is to create an inventory of your home.
replacement value for better protection
While some policies offer “actual cash value” coverage, you generally want “replacement cost” coverage. this reimburses you for the cost of buying new items, not the depreciated value of what was destroyed.
adjusting the coverage of your content
Most home insurance policies will default to a percentage of the home’s coverage to determine contents coverage. this breach could be 50% of homeowners insurance. if you had $300,000 in homeowners coverage, this would provide $150,000 to replace belongings. you may find this insufficient when you consider all the furniture, rugs, clothing, and other items you’d like to replace.
You can adjust your contents coverage upwards for better insurance protection.
Many standard policies also limit coverage for theft of certain items, such as jewelry, watches, precious and semi-precious stones, and silverware. For example, a standard home insurance policy typically limits jewelry theft to $1,500 in coverage. To account for this, you can “schedule” expensive items for full coverage.
“open risk” coverage for belongings
Ordinary home insurance policies cover damage to contents from 16 “perils,” which are listed in the policy. These hazards include all the problems you would expect, such as fire, lightning, and explosion. but limiting coverage to 16 risks leaves you open to a potential gap in coverage.
Instead, buy a comprehensive policy that provides “open risk” or “all risk” coverage on your contents, for better protection.
“The comprehensive risk plan works in the customer’s favor,” says bob buckel, vice president of product management at erie insurance.
get better liability insurance
Homeowners often focus their attention on the coverage of their property within a homeowners insurance policy. but just as important is your liability coverage.
Liability insurance pays for court judgments and settlements against you if you are sued for injuries or property damage accidentally caused by you, a family member, or a pet. It also covers legal defense expenses. For example, if someone sues you for a bite from her dog, liability insurance covers it.
A homeowners policy may have default liability coverage as low as $100,000. but if you are facing an expensive lawsuit, this amount is not adequate.
“We recommend having enough liability coverage to at least cover your assets,” says Erie Insurance’s Buckel. “So, let’s say you [have] a $200,000 home, a nice car, and some money in the bank, you may want to buy at least $300,000 in coverage to protect your assets.”
Getting comprehensive liability coverage is easy by purchasing an umbrella insurance policy. umbrella insurance provides additional liability coverage on top of auto and homeowners insurance policies. Because you can buy millions of dollars worth of blanket coverage, you can adequately cover your net worth.
get enough coverage for loss of use
If you’re unable to live in your home while it’s being repaired due to a claim, loss of use coverage, also called additional living expense coverage, will reimburse you for the additional costs of living elsewhere. may reimburse you for lost rental income if you rent out a portion of the home.
The default coverage for loss of use could be 20% of the home’s coverage. when you think of the additional costs of a hotel and restaurants, that might not be enough. can increase your loss of use coverage.
best home insurance at a glance
natural disasters not covered by home insurance
some disasters require additional coverage, such as floods and earthquakes. both are generally excluded from home insurance coverage.
additional coverage you may need
Depending on your situation, you may need additional coverage that isn’t included in a standard policy. this can usually be done with add-ons and endorsements to your base policy.
Home Business Coverage. If you run a business out of your home, especially where customers come and go, you likely need business liability and business asset coverage. For example, if a client is injured in his home office, he would need commercial liability insurance.
identity theft. It can be expensive to recover from identity theft or being hacked. floyd yager, senior vice president of product management at allstate, points out that cybercrime and identity theft are common exclusions on a homeowners policy.
“If your identity is stolen and funds are taken from your bank account, your homeowners insurance policy won’t cover the loss,” he says.
Identity theft insurance is often available through homeowners insurers. reimburses you for the money lost due to these problems. For example, Allstate offers an identity theft endorsement that reimburses up to $25,000, for $30 a year (depending on the state).
cyber insurance. Some home insurance companies sell personal cyber insurance as a supplement to a policy. this covers you for cyber attacks, cyber bullying, cyber extortion, data breach, and online fraud.
more home insurance extras
Home insurance companies often offer a wide variety of endorsements to fill in other gaps in coverage. Depending on the company, you may be able to add: