Homeowners Insurance often Insufficient

A common misconception, fueled perhaps by our experience with health insurance, is that the insurance covers routine damage. Homeowners insurance coverage protects against DISASTERS to the home and its contents. It will not pay for routine wear and tear. Home insurance also covers liability for accidental injuries and property damage you, your family, or pets cause to other people.  Typically, home insurance policies include several types of coverages: dwelling, other structures, personal property, loss of use, medical payments, and personal liability coverage.  Every state has similar, yet differing, rules regarding the definitions of property and extent of coverage. Home insurance companies offer assorted insurance products. It is incumbent upon the home owner to study each offer carefully and choose wisely.

A. Explanation of Dwelling Coverage

Dwelling coverage protects the structure where you actually live. Land is not covered because it is not exposed to the risks that homeowner’s insurance covers. You will want to review your policy regularly to make sure it accurately covers current replacement value. Some policies have a great clause that states if your home is insured to at least 80% of actually value, the insurance adjuster will bump it up to replacement value.

B. Explanation of Other Structures Coverage

Other structures coverage covers garages, gazebos, greenhouses, tool sheds and other detached structures as long as you use these structures for personal use. Outbuildings, if used for business, such as a carpentry shop or a rented “granny” house, are not included. Business use structures would need separate business insurance coverage. Other structure coverage is normally limited to about 10% or so of the amount for dwelling coverage. Expensive outbuildings can be separately valued and covered by an endorsement to the policy.

C. Explanation of Personal Property Coverage

Personal property is covered anywhere in the world with some restrictions and limitations. An important example is most policies do not cover your property while in the possession of a moving company. Most policies have limits on their coverage of legal tender, such as cash, coins and bullion. The limits are surprisingly small, maybe only $200-500. The coverage for home contents is about 50% of the dwelling coverage. For example if your house is covered for $200,000, the contents are covered for $100,000, an amount that may exceed the actual replacement cost of the contents. Having a complete inventory will help you determine if your coverages are adequate or insufficient. Expensive items, such as art, jewelry, furs, may be listed and covered separately for an additional premium. Although land is not covered, landscaping and plants may be covered to a specified limit.

D. Explanation of Loss of Use or Additional Living Expenses

Loss or use or additional living expenses refers to to expenses incurred because you have lost the use of your home. This coverage includes rent, or hotel bills, and other living expenses while your home is being repaired or rebuilt. Coverage is typically about 20% of the dwelling coverage. It may be possible to purchase a policy that limits by time rather than by expenses. This coverage type also reimburses you for lost rent if you rent out part of your house.

E. Explanation of Medical Payments

If a visitor to your home is injured, your homeowner’s policy will reimburse the injured party for some of the medical bills, up to a specified limit. Typical guest medical protection is $5000 for each person injured. Some older policies have not kept pace with health care costs and it is common to see policies with only $1000 of guest medical protection. Review your policy and call your agent if you need to bring the policy up to date.

F. Explanation of Personal Liability

Liability is protection in the event of a lawsuit for bodily injury or property damage that you, family members, or your pets cause to other people. It does not cover damage your family members or pets cause to yourself or your own belongings. Liability includes the cost of both the defense and any award up to the specified limit, usually $100,000 or so. Most policies carry inadequate liability coverage, so you may want to purchase an umbrella liability policy for about $250 for 1 million dollars of protection.

Finally, because the value of additional types of coverage are based on the dwelling coverage, it is important to accurately access the cost of replacing your home should it be completely destroyed. Many policies also include a number of additional coverages including unauthorized credit card use and identity theft.