There are many forms of home insurance, some of which provide just enough basic coverage to meet the standards of mortgage lenders. But why only ‘get by’ when you could have a much better policy with enough coverage to help you face nearly any accident or loss with only minimal out-of-pocket costs? In this article, we will examine the various types of coverage available on two of the most popular home insurance policies – the HO-3 and HO-5. We will also help you better understand how to select a policy and determine how much home insurance is enough for you.
Coverage A – Dwelling
HO-3 and HO-5 insurance each provide broad coverage for the structure of your home. Under these policies, homes are protected against all risks that are not excluded in writing. This can provide homeowners the assurance they need to know they are prepared for nearly any unexpected event, from the usual to the bizarre.
Of course, if you want to be truly prepared, you have to have a deductible that fits your needs and a coverage limit that serves your best interests. A deductible that is too high could hamper your ability to afford your share of any future claims. Though a $2,000 deductible may reduce your annual premiums, it could become a financial burden if you face an unexpected loss.
Likewise, homeowners who are under-insured for their homes often fall short of having enough money to clean-up and rebuild after a partial or total loss. That’s because the ‘Co-Insurance Rule’ allows insurers to pay only a portion of your partial loss claims in ratio to the amount a home is underinsured for its full replacement value.
Here at Mid-Rivers Insurance, we help our clients select a deductible, as well as evaluate individual coverage needs. We consider many different factors, some of which include:
- Local construction costs
- The materials used in your home
- The size of your home
- The types of finishes and fixtures in your home
- The cost of clean-up and remediate your property after a loss
For help determining how much Dwelling coverage you need, contact our office today.
Coverage B – Other Structures
If you have any additional structures on your property besides your primary dwelling, you need coverage to help pay for their repair or replacement. This coverage is included by default in HO-3 and HO-5 insurance policies, and often at no additional cost. Insurers typically insure things like fences, pole barns, and detached garages for an amount equal to about 10 percent of the Dwelling coverage. If you determine you need additional coverage, however, talk with an agent here at Mid-Rivers Insurance about purchasing higher limits.
Coverage C – Personal Belongings
Besides the structures on your property, home insurance also covers personal belongings – usually for an amount up to 50-80 percent of your Coverage A limit. If that sounds like a lot, keep in mind that you would have to replace everything you own in the event of a total loss.
We recommend regularly updating a home inventory to calculate the value of your possessions. You may be surprised to find that replacing them would cost tens or even hundreds of thousands of dollars. Standard home insurance covers these items for their actual cash value, but you may be able to insure them for their replacement value by adding an endorsement to your policy.
Keep in mind that HO-3 and HO-5 insurance policies vary in how they cover home contents and personal possessions. Under HO-3, losses are only covered if they occur due to a hazard that is listed by name in the insurance policy. HO-5 is boundless, meaning it covers damages from nearly all risks except for the ones excluded by name in the policy.
Loss of Use (Coverage D)
Coverage D is an often overlooked, but very important coverage that helps compensate policy-holders for the extra cost of living after being displaced from home. It could help pay for the months-long lease on a temporary apartment, or you may be able to use it to pay for hotel charges and restaurant meals if you are only displaced for a few days or weeks. Loss of Use coverage is included by default in standard insurance policies, usually at a maximum benefit equal to 20 percent of your Coverage A limit.
Continue reading part two of “How much home insurance is enough?”