What you’ll discover in our “home insurance” articles:
- How your home may not be fully rebuilt – even though you have insurance!
- 11 ways to save money on your home insurance – including how to catch your insurer automatically increasing your premium every year
- SIX primary kinds of insurance in your home policy? Yes … and the right decision for each one
- The secret to brushing off a lawsuit
- How your jewelry and other personal property are NOT covered – and what to do about it!
- Why what’s not covered is more important than what is
- And more!
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 insurance policy actually pay for the damage? Will it pay for ALL of it?
What if someone visiting you slips and 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. And, more importantly, they don’t understand what their policy does NOT cover and what to do about that.
All homeowner’s insurance is not created equal. In fact, almost none of it is. There are thousands of different products out there, from hundreds of insurance companies. And your policy includes literally dozens of options and decisions you must make that determine how much insurance protection you actually have. Your home policy is not a commodity. It’s something tailored specifically to your needs and desires.
Six Primary Coverages Provided By Your Home Policy
Your home 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 home policy essentially refers to your home itself. It includes attached structures, as well … like an attached 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?
Warning: 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. How?
Contact our office and one of our brokers can run a replacement cost estimate that calculates the cost to rebuild your particular home. Be sure to adjust the amount of insurance for your dwelling appropriately. If you don’t you may not have enough insurance to replace your home if disaster strikes.
Note: 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. Be sure to discuss this with us as an additional protection feature. It’s probably worth having.
The most common Other Structures are sheds, stand-alone garages (known as “detached” garages in insurance terms), 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 – as stated on your Declarations 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. You need to know what it would cost to rebuild or replace those structures if they’re destroyed. 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 – furniture, clothing, electronics, appliances, art collection, jewelry, etc. It, too, has its own protection limit stated on your Declarations page. And, again, this amount is the most the insurance company will pay to replace your personal property.
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. We’re here to help!
Regardless of the protection limit for your personal property, there’s a very important question you must get answered. How is your property protected … on an “actual cash value” basis 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.
Clearly, insuring your personal property on a replacement cost basis is much better protection than actual cash value. Sometimes it costs a bit more, but not always. Make sure you know how your policy works and check the price both ways. Make the right decision for you.
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 home policy pays those additional expenses for you.
Your Declarations page may 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.
Your liability coverage pays if someone sues you for their injuries due to a covered claim. When we think of such accidents we most commonly think of injuries that occur on your property – someone slips and falls, a dog bite, etc.
However, the liability protection under your home policy extends beyond your property to your everyday life. For example, your home policy could also protect you if you knock someone over with a shopping cart at the grocery store.
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, more than that may be prudent, and you should discuss your needs and risks thoroughly with a licensed broker in our office. Your current liability limit will be stated on your Declarations page.
Medical Payments to Others
This pays medical bills for a guest who is injured on your property or in another covered claim. 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, but could save you major hassles by preventing a lawsuit.