Homeowners have multiple choices when it comes to home insurance. Options differ based on how coverage is provided for the owner’s property. For example, a basic policy might provide limited protection that satisfies the requirements of mortgage lenders, but it could leave the homeowner at risk of a major loss. In this article, we will explore the package of coverages available in two of the most commonly purchased policies – the HO-3 and HO-5. We will also help you evaluate your individual needs to determine how much home insurance is enough for you.
Dwelling
Dwelling coverage is protection for your home’s structure. It helps pay to repair or rebuild your house after a covered event. Whether you purchase an HO-3 or HO-5 insurance policy, this part of the policy protects against all types of risks except the ones excluded in writing.
Both policies will require that you choose a deductible, which could range between $500 and $2,000. Selecting a deductible on the lower end of that spectrum reduces your financial burden after a loss. On the other hand, a higher deductible can offer immediate savings in the form of lower annual premiums.
Choosing Your Coverage
Many homeowners make the mistake of insuring their homes based on the balance of a mortgage, the price paid for the home, or the cost to build the house several years ago. Doing so could be a mistake since the cost of rebuilding your home has no correlation to these factors. Furthermore, under-insuring your home could give your insurer the right to underpay your claims – even the ones for less than your total Dwelling coverage limit. That’s because the ‘Co-Insurance Rule’ allows for penalization of partial claims if you are underinsured according to your policy.
Instead, your home should be insured for its full replacement value; that is, the cost to rebuild your home with similar quality materials and finishes. Also, since the construction costs may rise over time, we recommend talking to your agent about the ways you can automatically increase your Dwelling coverage to account for inflation.
Other Structures
The additional structures on your property, such as your detached garage and your fence, need coverage, too. Since they are not included as a part of dwelling coverage, insurers typically provide separate coverage by default – usually in an amount equal to 10 percent of your Dwelling limit.
Personal Belongings
Over the years, you’ve probably accumulated a lot of personal belongings. As a homeowner, you have filled your home with furnishings, décor, appliances, electronics, and perhaps even some toys and sporting goods for the kids. Imagine replacing all of your home’s contents at once – how much would that cost? Standard home insurance includes coverage for personal belongings, reimbursing you for their actual cash value at the time of loss. However, many homeowners opt to add a replacement value endorsement that pays for replacement of losses with brand new items.
Chances are your insurer includes default coverage for personal belongings with a limit between 50 and 80 percent. However, you may need additional coverage beyond those limits, as well as scheduled coverage for high-value items that exceed dollar limits in your policy. Taking a home inventory is a simple and convenient way to ensure you are adequately insured for your possessions. You can download an app on your phone that helps calculate the value of your goods and reminds you to update your inventory periodically. A home inventory can also provide simplicity and ease if you need to declare losses for a claim.
HO-3 vs. HO-5
HO-3 and HO-5 insurance policies both include coverage for personal belongings, although the latter provides more comprehensive protection against a wide range of risks. Conversely, HO-3 limits coverage to only the perils listed by name in the insurance policy. Talk with an agent here at Heinen Insurance for help determining which policy is right for you.
Loss of Use
If disaster strikes your home, it could become uninhabitable during the repair or rebuilding process. During that time, look for your Loss of Use coverage to help fund the extra living expenses you may incur, such as rent or hotel charges. Your policy probably includes Loss of Use coverage for up to 20 percent of your Dwelling coverage limit by default, which is typically more than enough needed to weather several months away from home.
Personal Liability
When accidents happen, at-fault parties are financially responsible for the damages. Personal liability coverage is the section of your home insurance policy that helps pay for the third-party injuries and property damage you or the members of your household are responsible for causing.
All standard home insurance policies provide some degree of personal liability protection, although we here at Heinen Insurance recommend purchasing high limits of coverage – usually at least $100,000 to $300,000. This is typically enough to protect against the majority of liability claims, which can range from simple slip-and-fall injuries to accidents involving major loss. Without adequate coverage, you could be personally responsible for paying any damages that exceed the limits in your home insurance policy – even if you do not have sufficient savings or assets to pay for it. That could mean garnishment of your wages and derailment of your financial plans for the future.
Types of Losses
Personal liability insurance helps pay for injuries and property damages spanning a broad range of events. It could be that your child’s best friend is injured in your swimming pool, or your dog could bite someone while visiting the park. In fact, personal liability insurance typically follows you and the members of your household nearly anywhere you go, with certain exceptions for events like car and boat accidents.
Medical Payments
Injuries can happen anywhere – including your home. If someone other than a resident is injured on your property, medical payments coverage can help pay for medical attention, regardless of whose fault the accident is. Most medical payments coverage is limited to $1,000 to $5,000 of coverage. While this coverage does not relieve you of liability, it may be enough to pay for a health insurance deductible or take care of a doctor’s visit.
Endorsements
Endorsements build upon the existing coverage in a home insurance policy, providing additional protections and increased benefits for certain risk exposures. For example, standard homeowners insurance generally covers personal belongings for their actual cash value, which is the depreciated value of the damaged asset. Homeowners who prefer enough compensation to fully replace damaged belongings with new ones will need to purchase a replacement cost coverage endorsement. Other common home insurance endorsements include:
- Inflation guard endorsement to protect the future cost of rebuilding your home
- Water and sewer backup protection
- Home business coverage
- Scheduled coverage for expensive belongings, such as jewelry and fine art
- And more
For help determining which endorsements could be right for you, contact our office today.
Beyond Home Insurance
Personal liability insurance sometimes falls short of covering all the damages in a lawsuit. Even high-limit coverage is insufficient to protect a homeowner against a million-dollar lawsuit. That is why we recommend our clients consider an umbrella policy, which provides additional liability protection beyond the limits of a home insurance policy. If you are sued, your homeowners liability serves as the primary coverage. Once you exhaust the limits of that insurance, umbrella coverage pays for remaining damages up to the limits in your supplemental policy.
Most umbrella insurance policies provide a minimum of $1 million in liability protection, although higher limits are available. An average of just $200 per year or less provides peace of mind knowing your family, income, and assets are safeguarded against financial ruin. For more information or to request your Wisconsin umbrella insurance quote, contact our office today.
