As the owner of a home, you are living out your version of the American dream. Now that you have the house, you’ll need to protect it with an insurance policy that minimizes your exposure to risk. So how much home insurance is enough? In this guide, we’ll explain the various types of coverage included in two of the most commonly purchased homeowner’s policies – the HO-3 and HO-5. We’ll also teach you ways to estimate your coverage needs so that you are protected against accidents and capable of fully recovering from a total loss.
Coverage A – Dwelling
The first coverage listed on a standard insurance policy is coverage for your home’s structure. Known as Dwelling coverage, this is the part of your insurance policy that provides the parameters under which your home can be rebuilt or repaired after a loss. Both HO-3 and HO-5 insurance policies provide home dwelling coverage for all types of risks except for a few that are excluded in writing on the policy. Both policies also require that homeowners choose a deductible for cost-sharing in future claims. This could be as little as $500, but selecting a higher deductible could yield lower premiums.
Choosing Your Coverage
When you choose your Dwelling coverage, you are making a very important decision. Choosing limits that are too low could have significant repercussions:
- You might not recover all of your losses
- You might have to pay thousands out-of-pocket to rebuild a home with the same size and quality of materials
- You might fall short of complete coverage for partial claims due to the Co-Insurance Rule
- Your default coverage limits for Other Structures, Personal Belongings, and Loss of Use may be set too low
When selecting the appropriate limit for your home’s structure, we recommend working with an agent here at Glass Insurance Center. Our financial services team sees the ‘big picture’ when serving our clients. We know how to accurately estimate the cost of repairs, clean-up, and new construction based on local Lake Geneva pricing. We also know which factors are nonessential to your coverage needs, such as the value of your lot and the price you paid for your home.
Coverage B – Other Structures
Perhaps you need coverage for your boat dock, detached garage or other structures on your property that are not attached to your main home. Additional structures are generally covered separately from your dwelling under Coverage B – ‘Other Structures.’ Insurers often include this coverage at no charge, usually for an amount up to 10 percent of your Dwelling limit. If that is not enough to meet your needs, however, contact us to request additional coverage.
Coverage C – Personal Belongings
HO-3 and HO-5 insurance policies each protect the contents of your home – usually for an amount equal to between 50 and 80 percent of your Dwelling limit. Under HO-3, personal belongings are generally covered only for a list of named perils in the policy; damages from all other hazards are excluded. HO-5, on the other hand, provides open-peril coverage for all risks except a few that are excluded in writing in the policy.
If you have not yet done so, we recommend taking an inventory of all your belongings, including all items you store in and away from your home. Several mobile apps make it easy to track and update your belongings, allowing for safe digital storage and easy access in the event of a loss. Remember to include everything in your inventory – not just the ‘big stuff.’ Little things can add up to major expenses when you lose them all at once.
By default, most insurance policies cover home contents for their actual cash value (ACV). This is the depreciated value of the belongings – not the replacement value. If you prefer to receive reimbursement that will cover the cost of replacing your damaged belongings with new items, talk with an agent here at Glass Insurance Center about adding a replacement value endorsement to your policy.
Loss of Use
If your home suffers only minor damages, you may be able to continue living in it while it is repaired. If your house is completely destroyed or severely damaged, however, you may need to find somewhere else to live with your family while it is under construction. Loss of Use coverage can help offset the additional expenses you may incur at that time, helping to pay for things like rent or hotel fees. Home insurers typically include Loss of Use coverage by default in an amount equal to 20 percent of your Dwelling coverage.
Coverage E – Personal Liability
Coverage E is an important part of your home insurance policy, as it pertains to your financial protection against potential lawsuits. This is the coverage that shields your personal income and your assets against garnishment, liquidation, and seizure if you are at-fault for a third-party’s injuries or loss. Available coverage may vary from carrier to carrier, but we here at Glass Insurance Center typically recommend that our Lake Geneva area customers purchase the maximum amount of available liability protection – usually at least $300,000 – to better protect against litigation.
By purchasing high-limit coverage, you are protecting your family against a wide range of possible accidents scenarios – including those that occur away from home. With certain exceptions, such as boating and auto accidents, personal liability coverage typically follows you and the members of your household wherever you may go.
The Cost of Claims – Are You Prepared?
Accidents can happen to anyone, anywhere, at any time. If your lawn care provider severely injures himself falling into a hole in your backyard, you may be responsible for the injury. The cost of these claims can vary, but they are often much higher than one might expect. For example, the average cost of a dog bite claim in the U.S. is higher than ever before at more than $37,000. Incidentally, dog bites are also among the most common claims homeowners face, especially here in Wisconsin.
Coverage F – Medical Payments
Coverage F provides limited payment for medical bills dues to accidents and injuries at your home, regardless of fault. Most homeowners choose a coverage amount that will help pay for a doctor or emergency room visit or perhaps even a medical deductible. In most cases, coverage is capped at $1,000 to $5,000, although we here at Glass Insurance Center can help you determine which limit is right for you. Keep in mind that while Coverage F pays for medical bills stemming from injuries on your premises, it is not the same as personal liability protection nor does it relieve you of any liability in an accident.
Endorsements are optional additions to your policy that are implemented to enhance your benefits and personalize your coverage to fit your individual needs. Some endorsements are only necessary for individuals with certain risk exposures, such as policy-holders with home businesses or individuals with high-value assets. Others, however, are recommended to nearly all homeowners. An example would be the ‘personal property replacement’ endorsement that reimburses for the loss of personal belongings based on the replacement value of those items rather than the depreciated value. The team here at Glass Insurance Center will be happy to show you which endorsements could be right for you.
Beyond Home Insurance
A well-constructed home insurance policy can stand against many different loss scenarios, but did you know that even the highest coverage limits may not be enough to fully cover your liability after a major lawsuit? If you face a million-dollar judgment, your $300,000 limit could leave you with hundreds of thousands of dollars in excess damages to pay out of pocket. For these scenarios, we recommend an umbrella policy to help supplement your primary coverage with an additional $1 million or more.
Umbrella insurance is highly versatile, supplementing the primary liability protection on your home insurance, as well as other policies, such as your auto insurance. It is also very affordable – often just $200 per year or less. For more information about how umbrella insurance could shield your family against financial ruin, contact our office today.