Does your homeowners insurance policy provide enough coverage?
Homeowners insurance protects you, your personal property, and your home from covered losses. What counts as a covered loss depends on the type of homeowners policy you choose. Below are common home insurance options.
|Home Insurance Type||Property Covered Against||Contents Covered Against|
|HO-2 - Broad Form||Named perils||Named perils|
|HO-3 - Special Form||Open perils||Named perils|
|HO-5 - Comprehensive Form||Open perils||pen perils|
A named peril policy covers only the specific hazards listed on your policy. A peril is a cause of damage. A HO-2 or HO-3 policy covers only events listed on your policy. Below are the 16 named perils commonly covered by named perils insurance policies.
HO-3 and HO-5 homeowners insurance policies are "open perils" policies. The majority of insured homes in the US are covered by HO-3 policies. An open peril includes any circumstance aside from those specifically excluded from the policy. Floods, earthquakes, and sinkholes are typically excluded from HO-3 and HO-5 open peril policies. For a comprehensive list of events, check your declarations page. A general list of exclusions can be found here.
Home insurance covers both your property and your liability — an important distinction.
Each of these home insurance categories carries different coverage details:
|Coverage||Amount of Coverage|
|Coverage A - Dwelling||Replacement cost of your home|
|Coverage B - Other Structures||10% of Coverage A|
|Coverage C - Personal Property||50-70% of Coverage A|
|Coverage D - Additional Living Expenses||Actual Loss Sustained/Maximum Days or Amount|
This coverage works to replace your home if it is destroyed as a result of a covered loss. The value of your home is not factored into this amount. Because the value of your land does not change the cost of building a dwelling, the market value of a home and the amount of coverage provided by Coverage A may differ.
This coverage is subject to a deductible, i.e, what you pay before an insurance company steps in to handle the losses.
If Coverage A amounts to $250,000, the policy's "other structures" coverage will be $25,000 — 10% of Coverage A. Coverage B is subject to a deductible. This coverage applies to the following types of other structures:
This 10% is a general percentage used by insurance companies. Depending on the value of the other structures, you can increase this coverage level amount.
This coverage applies to the insured party's belongings. If a policy has a replacement cost of $250,000, the maximum personal property coverage would be $187,500 — 75% of $250,000. The policy could extend 50% personal property coverage, providing a max claims payout of $125,000. Each of these payouts would be subject to a deductible.
Personal property coverage extends to cover covered losses occurring away from the home, but usually at a decreased coverage level and not always for the same threats. For the exact limitation on your worldwide coverage personal property coverage, refer to your policy details.
Coverage C may come with sub-limits on certain items. Most insurance companies will cap the amount of coverage on valuable items, creating sub-limits. Below are some common sub-limits for personal property home insurance.
|$200||Money, Gold, Coins|
|$1,500||Jewelry, watches, furs||Theft-only|
You can increase personal property sub-limits by adding an endorsement — a rider or floater — to your policy. An endorsement raises the sub-limit to a certain amount for a general collection of items. For example, a jewelry endorsement raises the level of coverage for all jewelry owned by the insured party.
If you have one particularly valuable item for which you want individual coverage, consider a scheduled endorsement. This requires an appraisal and that the item is explicitly listed on the policy. This is a common practice for engagement or wedding rings.
If your home were to be destroyed or unlivable because of a covered loss, your additional living expenses would provide coverage for you to live elsewhere — up to the limits listed in your policy. Usually, your policy will give you a set amount of money or duration they will compensate. Unlike Coverages A, B, and C, additional living expenses are usually not subject to a deductible.
Home insurance personal liability provides coverage for property or bodily injury damage suffered by others for which you are deemed legally responsible. If your child throws a ball through a neighbor’s window and breaks their TV, you could be held liable for the damage to the window and the TV. Your personal liability coverage would provide settlement to the not-at-fault party as well as provide you with legal services if you are sued.
There are no state requirements for personal liability insurance. Typically, liability coverage is a fairly inexpensive part of homeowners insurance. High personal liability limits are recommended — greater than Coverage A level is a good place to start. A common measurement for personal liability coverage is it should be equal to or greater than your net income. If your personal liability limits are exhausted, you could be sued and be forced to forfeit your assets.
If someone injures themselves on your property (and they do not live at the residence), this coverage can cover their medical care. While it can vary, the following are typical medical expenses covered:
This coverage is based on a limit you can set and is not subject to a deductible.
Many exclusions on a standard homeowners insurance policy can be added via endorsements. Below are major exclusions worth keeping in mind when buying a homeowners policy.
There are perils that are never covered in a homeowners policy — regardless of whether the policy is a named peril or open peril policy.
Owning a home is a major investment — you should make sure it is properly protected. Below are some additional coverage options.
Depending on your location, this can be a useful coverage. Nearly all insurance policies exclude damage caused by mold. In the eyes of an insurance company, it is difficult to determine the cause of the mold and the damage can be too risky to insure. If you’d like, you can add limited mold and fungi coverage as an endorsement.
The coverage you receive will vary based on your insurance provider. It may include the following:
There are many caveats to covering personal property via homeowners insurance. If you have any valuable item from the list above, consider increasing your coverage level with an endorsement.
An endorsement for art, for example, will increase the coverage level for your entire art collection. If you have one particular piece that you’d like to cover at a higher amount, consider a scheduled endorsement. This ensures your item is individually appraised and insured at its exact value.
Damage caused by earthquakes is excluded from every insurance policy. But depending on your location and company, you can add it back or add a complementary policy. If you live in an earthquake-prone area, you should definitely consider this coverage. If your current provider does not provide it, you can use outside providers. In California, the California Earthquake Authority (CEA) is a major provider for earthquake coverage.
For a small additional fee, you can usually upgrade your reimbursement on your personal property from Actual Cash Value (ACV) to Replacement Cost Coverage. With an ACV reimbursement policy, your claims check would factor into depreciation. With a replacement cost policy, you would get the value to replace your belongings at its current value.
Because of the risk and cost of claim payouts, most private insurance providers will not provide flood coverage. If you live in a flood plain, you should acquire flood insurance via the National Flood Insurance Program (NFIP). This will be separate from your homeowners insurance but can turn out to be equally important in the event of a flood.
What is covered by home insurance varies based on what type of home insurance policy you have. HO-2 offers the least coverage. HO-3 is a middle point between HO-2 and HO-5. Below are our top recommendations for ensuring you are probably covered:
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