As a homeowner, you want to protect your home’s value and the investment you put into it. What you may not know is that there is no link between the price you paid for your home and the amount of insurance coverage you need. So how much home insurance is enough to meet your needs? In this article, we will explain why you need insurance that covers the cost to rebuild your home, as well as a wide range of other coverages to protect your belongings, income, and assets.
Coverage A – The Structure of Your Home
Coverage A is protection for your Dwelling. This is the interior and exterior structural components of your home, such as the walls, roof, foundation, flooring, cabinetry, and masonry. While Dwelling coverage is a part of all home insurance policies, two forms in particular – HO-3 and HO-5 – provide extensive open-peril coverage for damages to your house. With the exception of a few risk exclusions, a home insured under one of these policies is covered against any hazard or peril.
You may already be familiar with insurance deductibles, as they are a primary component of many types of insurance policies. As a homeowner, you will pay a deductible for any damage claims you make. This should be an amount that fits your needs and budget. Most policy-holders choose a deductible between $500 and $2,000. While the lower deductible is more affordable at the time of a loss, the higher deductible can yield immediate cost savings with lower annual home insurance premiums.
Insuring Your Home: Market vs. Replacement Value
There is no link between the market value of your home or the price you paid for it when you bought it and the amount of money it will actually cost you to rebuild your home from the ground-up. Construction prices are always fluctuating and can vary tremendously from year to year. When deciding on a coverage amount for your Dwelling, be sure to account for:
- Current local construction rates
- The cost of clean-up
- Your square footage
- The materials used in your home
- Future inflation rates
For help calculating your Dwelling coverage needs or raising the limits on your existing policy, contact an agent here at Carrigan Insurance.
Coverage B – The Other Structures on Your Property
Chances are there are structures on your property that are not attached to the main house. Examples include:
- Detached garages
- Tool sheds
- Pole Barns
- Guest Houses
- And more
Coverage B typically offers coverage for these structures up to 10 percent of the Coverage A limit and often at no additional charge. If you feel that the default limit on your Coverage B is too low, however, do not hesitate to contact us about increasing your coverage. Our goal is always to ensure you are adequately protected for the things you own.
Coverage C – Your Possessions
Coverage C is designed to compensate you for the loss of your personal belongings. This includes items inside your home, as well as items that are damaged or stolen away from your home. Coverage C is typically included with default coverage between 50 and 80 percent of the Coverage A limit, although there are dollar limitations on certain classifications of items, such as jewelry. We recommend scheduling additional coverage for high-value items that exceed these limits.
If you experience a loss under Coverage C, the results of your claim will depend on several factors. First, insurers will look at the type of policy you have and the event that caused the loss. HO-3 policies, for example, only cover personal belongings for specific named perils listed in the policy. HO-5 provides open coverage for all risks except those excluded in the policy. Next, the insurer will compensate you based on the type of coverage you purchased. Standard coverage reimburses policy-holders based on the depreciated cash value of the damaged items. If you prefer compensation for the new, replacement value of your belongings, you’ll need to add an endorsement to your policy.
Coverage D – Additional Living Expenses
Coverage D is designed to lighten your financial load when a disaster forces you out of your home. Until it is repaired or rebuilt, you will need to find somewhere to live – perhaps a hotel or an apartment. Coverage D helps pay for increased living expenses incurred due to the loss of the use of your home, usually for an amount equal to up to 20 percent of your Coverage A limit.
Continue reading part two of “How much home insurance is enough?”