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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.
Contact our office and one of our agents 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, 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 that 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.
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 agent in our office. Your current liability limit will be stated on your Declarations page.
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.
It’s What’s NOT Covered That Will Hurt You
Imagine your home is damaged. You call your insurance agent to report the claim. And then you hear the worst news possible, “I’m sorry. That’s not covered by your policy.” Now, you have a real problem.
The unfortunate truth is that no insurance policy covers you for everything that could possibly happen to you or your property. However, with a little bit of understanding you can make sure you have the protection you want … and make sure your claims get paid by the insurance company.
Beware: It’s Not Always Covered
Just because you have an insurance policy that doesn’t mean your home is covered for everything. Your home policy doesn’t cover you against every “cause of loss”. What’s that? Fire is a cause of loss. High wind is a cause of loss. These are also known as “perils” in insurance terminology.
A standard home policy excludes many causes of loss. That is, it does NOT protect you from certain perils – like earthquake, flood and surface water, termite damage and many more. That means if your home is damaged by one of these excluded perils your policy will not respond. You have no insurance against them.
If you want insurance against some of these perils, you can buy it … like earthquake or flood insurance. However, some excluded perils are not insurable … like insect damage. Be sure to discuss your policy exclusions with an agent in our office and buy the protection you really need. Don’t be caught by surprise after the damage is done. It’s too late to buy insurance then.
Special Limits On Personal Property
As if your home policy wasn’t complicated enough already it includes “special limits” of protection for some of your personal property. A “special limit” reduces the protection specifically available for certain types of property.
Property subject to a special limit typically includes … property used for business … cash & coin collections … jewelry & furs … guns … silverware … and more.
Additionally, some of these special limits apply only if the property is lost or stolen – making things just a little more confusing.
For example, the standard home policy typically includes only $1,000 of protection for stolen jewelry. If your $2,500 diamond engagement ring is stolen you’ll get only $1,000 from the insurance company. Ouch! And, if the stone falls out of the ring and is lost, there may be NO coverage at all!
The bottom line is it’s very important you fully discuss these conditions and special limits with your agent and buy the protection you need. Otherwise, you could find yourself with a very nasty surprise … an unpaid claim!
Conducting Business At Home
WARNING! Your home policy has very strict limits and rules about business conducted at home. The protection offered by your policy is severely limited if your claim arises from business activities. Your business property has very little coverage. And in some cases you may have no liability protection at all.
This is not something to take lightly and just assume everything will be fine. Be sure to discuss your home business activities with a licensed agent in our office to make sure you’re still protected.
Other Exclusions and Options
The standard home policy excludes protection for many things. But then the insurance company gives you an opportunity to buy some of them back.
Additionally, you have the option of increasing protection where you personally need it.
There are literally dozens of optional coverages available in your home policy. Here are some of the more common options available to you.
Identity Theft – many home insurers now offer protection for Identity Theft in their home policies. This will help pay the expenses you incur to restore your identity if it’s stolen.
Water & Sewage Backup – the standard home policy excludes damage caused by a water or sewage system backup. You can buy this protection if you want it.
Ordinance & Law — pays the increased costs of repairing or rebuilding your home that are a result of changes in local building codes. For example, your home has single paned windows. After a loss, the local building department requires double-paned windows. This endorsement pays for the increased cost required by the new building code.
Packaged Endorsements – often times an insurance company will package the optional coverages people most commonly buy into a single endorsement. That means for a lower price you can get several optional coverages added to your policy.
There are many more optional coverage and exclusion buy-backs your agent can explain to you. Take a few moments to understand them and make good decisions about your protection.