Whether you have a new home or an older one, you need a homeowners policy. It offers the protection you need in case of fire, water damage or a natural disaster.
It also provides liability coverage in case someone is injured on your property. A good rule of thumb is to buy enough to cover your assets–at least $300,000 to $500,000.
The property coverage provided by your home insurance policy will cover your house, shed, garage and other structures on your property if they are damaged or destroyed due to fire, wind, hail and other events listed in the policy. It also covers damage or destruction to your personal belongings inside and outside of your home, as well as liability if someone gets hurt on your property.
The amount of coverage you need for your home will depend on many factors, including the size and condition of your roof, furnace, plumbing and other major parts of the structure. Your insurance agent or financial advisor can help you assess these issues and find a solution that meets your needs and budget.
Your dwelling coverage limit, or the maximum amount you can receive for a total loss to your house, should be sufficient to rebuild your house and its contents. If your roof or attic were to be destroyed by a hailstorm, for example, the insurance company would pay the cost of replacing it, up to your dwelling coverage limit.
You can also add scheduled personal property coverage to your homeowners policy, which typically results in higher premiums. This type of coverage, which is referred to as a rider, floater or endorsement, will offer additional protection for high-value possessions like jewelry, fine art and firearms.
For most homeowners, replacement cost value coverage is the most affordable level of coverage they can get. This will pay a percentage of your home’s original purchase price, up to your policy limit, if a regional disaster increases the cost of materials and labor in your area.
But if you have valuable or expensive items, this type of coverage may not be enough to fully replace them. That’s why it’s a good idea to do a home inventory of your valuables and save receipts.
Another option to consider is a guaranteed replacement cost (GRC) or extended replacement cost (ERC) endorsement. This type of coverage will provide more than your standard replacement cost value if a local disaster increases the cost of labor and materials in your region.
Homeowners policies typically include liability coverage, which protects you from legal costs if a third party sues you or members of your family for damages caused on your property. This type of insurance helps cover lawsuit judgments, settlements and legal bills, up to the limits of your policy.
Personal property (contents): Contents, including furniture, clothing, sports equipment and other belongings you have inside your house, are typically covered up to 70 percent of the total dwelling value. However, if the contents of your home are expensive, such as jewelry, furs, art or collectibles, you might want to purchase a special personal property endorsement or floater.
Standard homeowners insurance also usually includes Additional Living Expenses, which pays for the cost of living in another home or apartment while your house is being repaired after a disaster. This can include hotel bills, restaurant meals and other living expenses, such as gasoline for vehicles.
Medical payments: Your home insurance may also provide medical expense coverage for people injured on your property, regardless of fault. This could pay for their medical bills, as well as any compensation for pain and suffering or loss of income.
Liability coverage can be included in your homeowners insurance or purchased as a separate insurance product, which is called an umbrella policy. This policy provides additional coverage over and above your personal liability and medical payment insurance, and can extend to other people who aren’t covered by a homeowners policy or other type of liability insurance.
A typical home owner’s insurance policy includes liability and medical payment coverage, which are typically limited to $25,000 per occurrence. These limits can be increased to a higher level, as well.
In addition to these basic features, most homeowner’s policies offer extra coverage options, such as water damage protection or a garage liability rider that can extend your liability limits. Many policies also include personal effects coverage, which covers the belongings of your household that are stored off-premises.
When you’re deciding on the right home insurance, it’s best to talk with an independent insurance agent who can walk you through your needs and explain how different policies can help you. They can also give you a personalized rate from top carriers.
Additional Living Expenses Coverage
Your home insurance may also include additional living expenses coverage, which reimburses you for reasonable expenses you would face in a temporary location while repairs are being made. Often referred to as loss of use or loss of occupancy, this coverage can be a great asset when you are displaced from your home by a covered event like a fire or flood.
You can be reimbursed for these costs up to your policy’s limits, which typically range from 30 percent to 50 percent of your dwelling coverage in most homeowners policies and up to 24 months in renters or condo policies. You can find more information about these benefits in UP’s Simplified Guide to Your Homeowners Policy, and read the terms of your specific policy carefully before making any claims.
The coverage pays for costs that you can’t normally afford while you are temporarily residing in another place, such as eating out and hotel expenses. It also covers the costs of furnishing a new place you’ll be living in, such as a dining room table.
When determining whether you qualify for additional living expenses reimbursement, insurers will look at how these costs compare to your normal expenses and how they are related to the loss event. For example, if you currently live in a $1,000-a-month apartment and have to relocate to a $1,200-a-month rental home, the amount you claim for food expenses will be reduced by $200 to reflect that difference in your monthly budget.
To ensure you receive full and fair reimbursement, keep meticulous records of any expenses you incur while living in a different location. You’ll need to save receipts for things like restaurant meals, laundry and hotel stays to submit with your loss of use claim.
If you are displaced from your home due to a covered loss, talk to your insurer immediately. They can help you understand your options and provide the support you need. They’ll work with a network of rental homes in your area to find accommodations that are comparable to the one you have lost.
If you own a rental property or have other assets that can be threatened by liability lawsuits, an umbrella policy can help. These policies protect the value of your assets by providing excess liability coverage in case your home or auto insurance limits are exhausted.
This extra layer of protection can save you from having to settle a lawsuit for far less than you’d have to pay in court and legal costs alone. Umbrella insurance typically covers your losses up to $1 million in the event of a lawsuit.
The amount of umbrella coverage you need will depend on the value of your assets and how much risk you are willing to take. You should also consider the future income you could lose if you were forced to settle a lawsuit for a large sum of money, regardless of whether it was baseless or not.
Aside from protecting the value of your assets, umbrella insurance is also useful in a variety of ways. It can provide coverage for incidents your main insurance policy cannot, such as libel and slander lawsuits.
It can also help cover claims that may be outside the scope of your main liability policies, such as a property damage claim caused by a faulty roof or kitchen fire.
As a homeowner, you need to answer the following questions to determine how much coverage you will need:
What is the value of my home? What is the total replacement cost of my home and belongings?
You’ll want to be sure that your homeowners insurance provides enough coverage for the full value of your home and all of its components, including the roof, plumbing, built-in appliances and furniture.
If your insurance company doesn’t provide the right amount of coverage, it’s best to shop around and find an insurer who does. You can do this by contacting an insurance broker who will gather quotes from multiple companies and help you compare prices and features.
When you’re comparing quotes, keep in mind that your umbrella coverage will not protect you from damage you cause intentionally. If you are a landlord or have any type of business-related liability, you will need to purchase a business umbrella policy.