Protecting Your Property with Homeowners Insurance
Your home is probably your most valuable asset. It is also a huge risk for you financially. What if something happens to it? A fire? A flood? Vandalism? Will your homeowners insurance policy actually pay for the damage? Will it pay for ALL of it? What if someone visiting you slips, falls and suffers a serious injury? And sues you? An accident like that could put a dent, or worse, in your financial security.
For most people, insurance is a mystery. They know they need to have insurance for their homes (mortgage lenders require it), but they don’t understand the protection provided by the policy. More importantly, they don’t understand what their policy does NOT cover and what to do about that. All homeowners insurance is not created equal. There are thousands of different products, from hundreds of insurance companies and your policy includes dozens of options. You must determine how much insurance protection you actually need.
Your homeowners insurance policy is not a commodity. It’s something tailored specifically to your needs and desires.
Six Primary Coverages Provided By Your Homeowners Insurance Policy
Your homeowners policy protects you in six primary ways. You’ll find these listed on your policy’s “Declarations” page. Here’s what they mean to you.
The word Dwelling in your homeowners policy essentially refers to your home itself. It includes attached structures, like a garage. The dwelling limit (or amount of insurance) stated on your declarations page indicates the most the insurance company will pay to replace your home, if it’s destroyed by a covered claim. Is it enough?
Don’t make the mistake of thinking your home is fully covered just because you have an insurance policy! You must make sure your dwelling limit is enough to rebuild your home.
Contact our office and one of our agents can run a replacement cost estimate that calculates the cost to rebuild your home. Some policies include built-in protection above the stated dwelling limit, usually a percentage of the dwelling, just in case the estimate is too low. In our office, all homeowners policies have at least 125% extended replacement cost. Some companies range from 125% to unlimited replacement. Get in touch if you’re unsure what your policy offers.
The most common other structures are sheds, detached garages, barns, pool houses, etc. These structures are not directly attached to your home, the “dwelling”.
Other structures have their own protection limit, the most your company will pay to rebuild them is stated on your declaration page. This limit will be significantly less than the dwelling limit, usually 10% – 20% of the dwelling. For most people, that’s plenty of insurance for other structures, but not for everyone. Discuss it with the licensed professionals in our office. You can buy more protection for your other structures if you need it.
Your personal property is all your stuff – from your flat screen TV to your toothbrush. It too has its own protection limit stated on your declarations page. Your personal property limit is usually 70% – 75% of your dwelling limit. However, you can adjust this upward if you need more protection. Discuss your options with us.
Regardless of the protection limit for your personal property, there’s a very important question you must get answered. How is your property protected, is it “actual cash value” or a “replacement cost” basis? The difference is huge! In very basic terms, if your property is protected on a replacement cost basis the insurance company will replace your old stuff with new stuff. For example, if your 5-year old TV is destroyed in a covered claim, the company will pay for a brand new TV. That’s a good deal for you.
But if your property is protected on actual cash value basis, an “allowance for depreciation” is applied to the cost of a new TV based on the age of your destroyed TV. The result is you get a settlement amount less than the cost of a new TV. To buy a new TV, you’ll have to come up with the difference out of pocket. Not as good a deal for you.
Insuring your personal property on a replacement cost basis is much better protection than actual cash value. Make sure you know how your homeowners insurance policy works and check the price both ways.
Loss of Use
If your home is badly damaged you won’t be able to live in it while it’s being fixed or replaced. That means you may have to pay rent somewhere while you’re also paying your mortgage. The loss of use coverage on your homeowners insurance policy pays those additional expenses for you. Your declaration page will either state a dollar limit for this coverage, or it may state a time limit. If there is a dollar limit, this is the most the insurance company will pay for these expenses. If there’s a time limit, your insurance will pay all covered expenses regardless of the amount but only for the specified period.
Liability insurance is all about protecting your assets from someone who sues you. So, you should have at least as much liability insurance as your financial worth. However, you should discuss your needs and risks thoroughly with a licensed agent in our office. Your current liability limit will be stated on your declarations page.
You don’t have to be a millionaire to be sued like one!
Medical Payments to Others
This coverage pays medical bills for an invited or uninvited guest who is injured on your property. The idea is to do the right thing for someone, pay their medical bills, and then hope they don’t sue you. This protection is inexpensive, and could save you major hassles by preventing a lawsuit.
It’s What’s NOT Covered That Will Hurt You
Imagine your home is damaged. You call your insurance agent to report the claim. Then you hear the worst news possible, “I’m sorry. That’s not covered by your homeowners insurance policy.” Now, you have a real problem.
The unfortunate truth is, no insurance policy covers you for everything that could possibly happen to you or your property. However, with a little bit of understanding you can make sure you have the protection you want … and make sure your claims get paid by the insurance company.
Beware: It’s Not Always Covered
A standard homeowners insurance policy excludes many causes of loss. That is, it does NOT protect you from certain perils – like earthquake, flood and surface water, termite damage and many more. That means if your home is damaged by one of these excluded perils your policy will not respond. You have no insurance against them. If you want insurance against some of these perils, you can buy it, like earthquake or flood insurance. However, some excluded perils are not insurable, like insect damage. Be sure to discuss your policy exclusions with an agent in our office and buy the protection you really need. Don’t be caught by surprise after the damage is done. It’s too late to buy insurance then.
Special Limits On Personal Property
As if your homeowners insurance policy wasn’t complicated enough already it includes “special limits” of protection for some of your personal property. A “special limit” reduces the protection specifically available for certain types of property. Property subject to a special limit typically includes property used for business, cash & coin collections, jewelry, furs, guns, silverware, and more. Additionally, some of these special limits apply only if the property is lost or stolen making things just a little more confusing.
For example, the standard homeowners insurance policy typically includes only $1,000 of protection for stolen jewelry. If your $2,500 diamond engagement ring is stolen, you’ll get only $1,000 from the insurance company. If the stone falls out of the ring and is lost, there may be NO coverage at all!
The bottom line is, it’s very important you fully discuss these conditions and special limits with your agent and buy the protection you need. Otherwise, you could find yourself with a very nasty surprise … an unpaid claim!
Conducting Business At Home
Your homeowners insurance policy has very strict limits and rules about business conducted at home. The protection offered by your policy is severely limited if your claim arises from business activities. Your business property has very little coverage. In some cases you may have no liability protection at all. This is not something to take lightly and just assume everything will be fine. Be sure to discuss your home business activities with a licensed agent in our office to make sure you’re protected.
Other Exclusions and Options
The standard homeowners insurance policy excludes protection for many things. But the insurance company gives you an opportunity to buy some of them back. Additionally, you have the option of increasing protection where you personally need it. There are literally dozens of optional coverages available in your home policy. Here are some of the more common options available to you.
Identity Theft – many home insurers now offer protection for Identity Theft in their home policies. This will help pay the expenses you incur to restore your identity if it’s stolen.
Water & Sewage Backup – the standard homeowners insurance policy excludes damage caused by a water or sewage system backup. You can buy this protection if you want it.
Ordinance & Law – pays the increased costs of repairing or rebuilding your home that are a result of changes in local building codes.
Packaged Endorsements – often times an insurance company will package the optional coverages people most commonly buy into a single endorsement. That means for a lower price you can get several optional coverages added to your policy.
There are many more optional coverages your agent can explain to you. Take a few moments to understand them and make good decisions about your protection.