Home insurance protects what is typically the biggest investment you'll make: Your house. Yet this investment can disappear in matter of minutes or seconds if there's a fire or natural disaster. Insurance is meant to come to the rescue in these times of calamity.
A home insurance policy covers much more than damage to your house. There are additional coverage types within a policy that can save you from financial disaster, with limits often set as a percentage of the dwelling's coverage amount. (Check your own policy for limits.)
- Your belongings. (Often 50-75 percent of the dwelling amount.)
- Certain structures outside your house, such as your garage or fence. (Often 10 percent of the dwelling amount.)
- Loss of use, meaning additional living expenses you incur if you can't live at home due to damage. This could include hotel bills, restaurant meals and laundry costs. (Often 20 percent of the dwelling amount.)
- Liability, for cases where you are sued for damages or injuries to someone else.
- Medical bills for people injured on your property or by your pet.
Other items may be covered under your home insurance, with specific limits for each, so check your policy or ask your agent:
- Downed trees.
- Replacement of lawn, trees and shrubs.
- Debris removal.
- Power outages, including food spoilage.
- Grave markers.
- Unauthorized charges to your credit cards.
You may need extra coverage for valuables such as jewelry, your computer equipment, antiques and other pricey possessions, where their value exceeds the coverage limits in your policy.
Home insurance does not cover earthquakes or floods – you'll need to buy separate policies for those if you want coverage for those disasters. And in some areas of the country you need to buy windstorm coverage separately.
Mortgage lenders usually require customers to purchase home insurance. Don't rely on the coverage levels mandated by your mortgage company. Those levels are designed to protect the house itself, but not necessarily your possessions. That's why it's important to check with your agent at InsureMart to make sure you have adequate coverage.
Types of home insurance policies
There are the basic types of home insurance policies:
- Special form homeowners policy.
- Covers the structure for all perils except those specifically excluded by the policy.
- Contents are covered against perils named in the policy.
- Premier homeowners policy, generally offered to newer, high-end homes that are well-maintained.
- Much like the HO-3 policy but contents are covered against all perils except those specifically excluded.
- According to the Insurance Information Institute, in some cases, depending the year of construction, the area where you live, your claims history, and other rating factors, you can buy an HO-5 for about the same cost as a traditional HO-3.
- Provides personal property coverage, liability coverage and specific coverage of improvements to the owner's unit. Insurance provided by the owner's association normally covers most of the actual structure.
- Policy for older homes.
- Covers the same perils as HO-2 but pays only for repair costs or actual cash value, since replacement cost could make the policy costly.
- Well-suited for older homes whose market value is considerably less than the cost to rebuild them.
Home insurance rates
Many factors go into determining the premiums for a homeowners policy. The age of your home, the materials used to build it, where it's located, the square footage and its distance from a fire hydrant all generally play a role in rates.
If you raise your deductible you will be able to lower your premium. You may be used to a flat-dollar amount deductible, such as $1,000. But recent years have seen the spread of percentage-based deductibles -- for either all property-damage claims or for claims for certain perils, like windstorms.
These policies make you liable for 1 to 5 percent of your home’s insured value (not a percent of the amount of the claim) before the insurance company pays. So, if you have a 2 percent deductible and your home's insured value is $250,000, you're on the hook for $5,000.
Check your homeowners policy's declarations page to make sure you know your current deductible.
Replacing personal property
The extent of coverage for your belongings depends on the policy's loss settlement clause. This clause identifies property that will be valued at actual cash value, and property that will be valued at replacement cost.
Before buying home insurance, understand the differences between "actual cash value" and "replacement cost."
A cash value policy pays for an item's replacement cost, minus depreciation.
Replacement cost policies give you more protection than actual cash value coverage. For example, what happens if a burglar steals your six-year-old television set? With actual cash value coverage, you get only what you would expect to pay for a six-year-old television set. With replacement cost coverage, the insurance company pays to replace your TV with a new set similar to the stolen one.
Extended replacement cost for your house
Most insurance companies offer coverage for your dwelling that goes beyond its insured value. In other words, your premium might be determined based on dwelling coverage for $200,000, but if your home is destroyed and it costs $215,000 to rebuild, you're covered.
Guaranteed replacement cost coverage pays for the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit. You may have a tough time finding a policy with guaranteed replacement cost.
Extended replacement cost coverage pays a certain amount above the policy limit to replace a damaged home, generally 120 or 125 percent.
Guaranteed and extended replacement cost policies are designed to protect the policyholder after a major disaster when the high demand for building contractors and materials can push up the normal cost of reconstruction.
Other insurance you may need for your home
There are many potential extras, such as coverage for sewer back-ups and building-code upgrades. Below are some important additional coverage types.
Homeowners policies do not cover flood damage. The National Flood Insurance Program (NFIP) offers flood insurance through home insurance companies nationwide.
If a mortgage lender determines your home is in a special flood hazard area, you might be required to purchase flood insurance.
If you are concerned about earthquakes, you can buy earthquake insurance with a separate policy.
In much of the country, damage for wind is already included in a homeowners policy. But in hurricane-prone areas like Florida, homeowners who want to insure against wind damage need to buy special windstorm coverage.
If you want more liability coverage than your home insurance policy provides, you can buy a separate umbrella insurance policy. This is a good idea if you have a lot of assets and would be open to a big lawsuit if you cause a lot of damage. The liability coverage gained through an umbrella policy is also relatively cheap.
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*Coverages may vary by state and by insured business. Consult your InsureMart Inc. agent about coverages you may need for your unique situation. Coverage descriptions above are for general information only. Actual coverage is subject to all terms, conditions and exclusions of the policy.