Storms, blizzards, fires, and theft – it’s not a question of if they will happen, but rather when and to whom. Of course, these aren’t the only hazards that could threaten your home and personal property. Hoards of other accidents and disasters could deal a major blow to your finances if you don’t have adequate home insurance coverage. In this post, we will dive deep into the world of home insurance, reviewing the coverage in two of the most common types of homeowners insurance: the HO-3 and HO-5.
Coverage A – Dwelling
Dwelling coverage pays to rebuild or repair your home after a covered event. Both HO-3 and HO-5 policies cover damages for all risks not excluded in writing in your home insurance policy. Dwelling insurance is the most substantial coverage on most policies and is often the baseline from which insurers establish default limits on other types of coverage.
It is important to select adequate dwelling limits to avoid being underfunded for a claim. Even if you experience only a partial loss, some insurers reserve the right to enforce a Co-Insurance Rule that penalizes coverage for partial claims if your home is insured for less than a certain percent, typically 80% of the replacement cost.
To calculate your most accurate coverage need, we recommend talking with an agent here at G&L Insurance. We do not consider the value of your lot or the price you paid for the home since these factors place no weight on the value of your loss. Instead, we use our Home Cost Estimator to evaluate the cost to rebuild your home according to current local construction rates.
We can also help you select a deductible – usually between $500 and $2,000; this is the amount you will contribute toward the cost of future claims against your property. Deductibles do not affect your coverage, but they do impact your rates. Higher deductibles can help drive down premiums, but low deductibles minimize your financial responsibility after a loss.
Coverage B – Other Structures
Unless your home exists without a driveway, fence, and any other buildings on your property, you will need additional coverage for other structures. Many insurers automatically set the coverage limits for these structures at 10 percent of the Dwelling coverage limits, although higher limits are available to those who need them. That way, if a drunk driver plows through your fence and into your detached garage, you can relax knowing you’re covered – even if the at-fault driver is uninsured.
Coverage C – Personal Belongings
If you add up the value of your personal belongings, you might be surprised at how much you could lose in a devastating fire or another disastrous event. HO-3 and HO-5 policies both cover home contents, but they differ in the types of losses they cover. An HO-3 policy is more limited, providing coverage only for named perils. HO-5 policies, on the other hand, take care of losses due to all risks so long as they are not explicitly excluded in the insurance policy.
Though most insurers set the default coverage for Personal Belongings somewhere between 50 and 80 percent of the Dwelling limit value, we recommend that all homeowners keep an inventory of contents for greater accuracy, as additional coverage may be available to those who need it. Several mobile apps make it easy to keep and update a home inventory. These apps also store information in the cloud, assuring it can be safely and easily accessed should you need to declare a loss.
Coverage D – Loss of Use
If your home is severely damaged or destroyed, you might need to find somewhere to live while it is repaired or rebuilt. Standard home insurance policies include coverage for Loss of Use. It pays for the excess living expenses you incur as a result of temporary displacement. Most homeowners are adequately insured when Loss of Use limits are set at 20 percent of the Dwelling limit.
Coverage E – Personal Liability
The next section of your insurance policy may not have anything to do with your home or belongings, but it can still protect you against major financial loss due to third-party injuries and property damages. Typically, personal liability coverage provides payment if you are at-fault for an accident that results in injury or property loss to another person. Despite some exclusions for certain events like car and boat accidents, personal liability generally covers you and the members of your household wherever you go.
It is important to choose adequate coverage for your personal liability, as you may be responsible for paying out-of-pocket for any damages that exceed the limits you choose. For example, if your teenage child injures a pedestrian while riding a bicycle, you can be held liable for the victim’s medical bills, lost wages, and any long-term complications that may result due to the accident. If you only have $100,000 of personal liability coverage, you may have difficulty covering a judgment that totals $250,000 without dipping into your savings or making payments from future income.
Many homeowners choose high coverage limits – often enough to cover a $300,000 liability. However, we recommend working closely with an agent here at G&L Insurance to assess your individual liability risks and determine how much coverage is right for you.
Coverage F – Medical Payments
Medical payments coverage is the section of your home insurance policy that helps pay for basic medical expenses after someone is injured on your property, regardless of fault. The limits are typically low and outlined within your policy – usually between $1,000 and $5,000. This is usually enough to cover the cost of stitches or a health insurance co-payment. Having medical payments coverage can prove highly beneficial, as it may help to resolve small injury claims without legal action. Although it does not absolve you of any liability you have for a guest’s injury, this gesture of goodwill could prevent a lawsuit in the future.
HO-3 and HO-5 insurance policies come with standard coverage designed to address the risk exposures of most homeowners. However, some policy-holders prefer expanded coverage, including additional protections to minimize vulnerability to specific types of risks. Endorsements make it possible to customize home insurance according to the needs of the policy-holder.
For example, water backup can wreak havoc on a home, costing tens of thousands of dollars in damages. While it is not typically covered under a standard home insurance policy, homeowners can purchase a water backup and sewer endorsement that will expand coverage to include this type of damage.
Other endorsements include:
- Replacement cost coverage endorsement for personal belongings
- Scheduled coverage for high-value belongings and collections
- Inflation guard protection for your dwelling
- Home business endorsement
- And more
Beyond Home Insurance
Sometimes home insurance is not enough. Even the most comprehensive personal liability coverage may not be adequate to protect you against a major lawsuit, which could far surpass the limits of your policy. That is why we here at G&L Insurance recommend homeowners consider adding an umbrella policy to their insurance portfolios. Umbrella insurance is supplemental liability that provides extended coverage when damages exceed the limits of your primary coverage. It can extend your liability protection by an additional $1 million or more and may cost as little as $200 per year or less.
For more information about umbrella insurance or to request your free quote, contact our office today.