Could you afford to replace all of your belongings if your home were burglarized? What would you do if you lost your home in a fire and needed to rebuild? These are the types of scenarios home insurance is designed for. Fortunately, your policy can protect you against a wide range of hazards so long as you have adequate coverage. In this post, we will explore the most common types of home insurance and the coverage they provide.
Coverage A – Dwelling
Dwelling insurance is what many people think of when they purchase home insurance, although it is only one of several coverage types included in a typical policy. Dwelling insurance covers the structure of the home and is usually mandatory according to the terms of most mortgage agreements. On HO-3 and HO-5 policies, dwelling coverage insures the home against damages caused by all types of risks except those excluded in writing.
Insurers require that you select a deductible – usually between $500 and $2,000 – to pay toward the cost of any future claims. You will also select a coverage amount, which should be adequate to remove debris and rebuild a home of comparable size and similar finishes. Contrary to popular belief, the price you paid for your home and the value of your lot should not be included in your coverage calculations, as they have no correlation with the actual cost to rebuild the structure.
Homeowners who select limits that are too low not only risk being underfunded for a total loss, but also for a partial loss. That’s because some insurers enforce a ‘Co-Insurance Rule,’ which allows penalization for partial loss coverage if the Coverage A amount is less than what is required. In other words, if your home is only insured for 60 percent of the actual cost to rebuild, your insurer may reduce the amount of your claim, making you responsible for the remaining costs.
For help calculating an accurate figure, contact an agent here at Killey Insurance. Using our Home Cost Estimator, we can calculate the coverage you need to protect your dwelling.
Coverage B – Other Structures
Most homeowners have multiple structures on their property. If you have a fence, swimming pool, detached garage, driveway, or a barn that is not part of your business, it will be covered under the ‘Other Structures’ section of your policy. Companies often insure these structures at a default value equal to 10 percent of your Dwelling coverage limits. In most cases, this is enough to pay for repairs after a limb crashes into your garage roof or high winds overthrow your pole barn. However, you can request higher limits if necessary.
Coverage C – Personal Belongings
The value of your personal belongings likely totals tens or even hundreds of thousands of dollars. If your items are stolen or destroyed in a fire, your personal belongings coverage helps reimburse you for your loss according to their actual value. Insurance companies typically calculate personal property coverage at a default rate, which is often between 50 and 80 percent of your Dwelling coverage limit. Here at Killey Insurance, we recommend keeping a home inventory and updating it regularly. There are several apps that can store this information digitally, making it easier to declare losses if you need to file a claim.
It is important to note that under the standard coverage of an HO-3 policy, personal belongings are covered for named perils only. However, the HO-5 policy offers broader, more comprehensive coverage for possessions. It extends ‘all risk’ coverage for home contents so long as the loss was not caused by an event specifically excluded in writing.
Coverage D – Loss of Use
Temporary displacement, while your home is rebuilt or repaired, can incur extra living expenses that exceed your usual budget. Loss of Use coverage helps pay for excess costs, such as rent, laundering, food, and more. This coverage is usually calculated at 20 percent of your Dwelling limit.
Continue reading part two of “How much home insurance is enough?”