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 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.
Coverage E – Personal Liability
This section of your insurance policy is very different than the previous ones. Coverage E pertains to payments for third-party damages – not the loss of your own home or belongings. If you are at-fault for another person’s loss, personal liability coverage can indirectly protect your assets and income against the financial responsibility of a lawsuit. It comes standard on a typical home insurance policy, but you will need to select limits that fit your needs.
Here at Mid-Rivers Insurance, we understand the value of having adequate personal liability limits. Without it, you may need to sell your possessions, liquidate investments, drain savings accounts, or even make payments from future wages until you pay off your debt. Since claims can cost tens or even hundreds of thousands of dollars, it could pay to have high limits of at least $100,000 to $300,000.
Types of Personal Liability Claims
As an independent insurance agency in Missouri, we feel like we have seen everything when it comes to liability claims. Some claims are unusual and unique, whereas others are much more common. Dog bite claims, for example, frequently occur, topping the list of common home insurance liability claims in the U.S. If your pet attacks a person or another pet, the claim could cost you tens of thousands of dollars. In fact, the average cost of dog bite claims in the U.S. are at an all-time high of more than $37,000 – nearly double what it was in 2003.
The question isn’t whether your dog will bite someone. It is, “How much will you be sued for if it does?” Will your liability limits be high enough to foot the bill, or will you need to pay for the damages yourself? Fortunately, it does not matter if an accident occurs at your home or while you are away. It also does not matter if it was you, your pet, or another member of your household who caused the accidental injury or property damage. With certain exceptions for events like car and boat accidents, personal liability coverage generally follows you and your family members where ever you may go.
Coverage F – Medical Payments
Medical payments coverage is similar to liability coverage, but it does not require the establishment of fault to pay benefits. If someone who does not live in your home is injured on your property, medical payments coverage helps ensure they get the medical attention they need, whether it requires a trip to the emergency room or a visit to the doctor’s office. With typical limits between $1,000 and $5,000, this coverage may even cover the cost of a health insurance deductible.
A standard home insurance policy provides broad benefits that are suitable for the needs of the average homeowner, but it leaves out many important protections that are necessary or important to a narrower group of homeowners. Endorsements allow insurers to customize home insurance policies to fit the needs of these individuals while still keeping costs low for those who do not need or want these extra benefits.
Examples of common endorsements include scheduled coverage for high-value belongings, such as jewelry and furs. It could also include coverage for a home business or replacement value coverage for personal belongings. Some endorsements are even recommended for the majority of homeowners, such as water backup and sewer protection. For help determining which endorsements to add to your home insurance policy, contact our office today.
Beyond Home Insurance
The high limits on your personal liability coverage may still be too little to cover your financial burden after a major lawsuit. Instead of leaving your assets and income at risk, we recommend talking with an agent about adding an umbrella insurance policy to your portfolio. Umbrella insurance is supplemental liability protection that pays additional benefits once you exceed the limits on your primary coverage. Policies typically come with a minimum of $1 million in additional coverage, all for an average of just $200 per year or less.