Homeowners Coverage Basics
When shopping for homeowners insurance, there’s much more to consider than how much your coverage will cost.
You need to buy the right type of policy. You need the proper level of protection, plus special provisions for valuables such as jewelry, computer equipment, and other possessions. You might also need additional coverage when any natural calamity like earthquakes or flood strikes your area and destroys or damages your home.
Lending institutions usually require mortgage customers to purchase homeowners coverage insurance. Don’t rely on the coverage levels mandated by your bank or 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 or homeowners insurance company, to make sure you have adequate coverage.
There are several basic types of home insurance policies:
Basic homeowners policy
Covers your house and possessions against 11 different perils.
Broad homeowners policy
Covers house and contents against 17 perils, with premiums running about 5 percent to 10 percent more than an HO-1 policy.
Special homeowners policy
Covers all perils except those specifically excluded by the policy. Costs 10 percent to 15 percent more than an HO-1 policy.
Renters Insurance Policy
Covers 17 named perils and includes liability coverage. It does not insure the dwelling itself.
Extensive homeowners policy
Covers damage from practically everything except earthquakes, wars and floods.
For owners of co-ops or condominiums
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-1 but pays only for repair costs or actual cash value, since replacement cost could make the policy costly.
Ways to Save
If your home is equipped with an alarm system, smoke detectors and deadbolt locks, you could save money. Those items help make your home safer and more secure.
Your policy’s dollar limits are important
If you insure your house for $100,000, that´s the most you will get if it is destroyed, even if it would cost more to replace it. The Declarations Page on the front of your policy shows how much coverage you have. Talk with your agent or company representative if you have any questions about your homeowners coverage limits.
Don’t wait until you have a claim to learn your policy’s limit.
Replacement cost coverage for your personal property
“Before buying homeowner’s insurance, you need to understand the difference between ‘replacement cost’ and ‘actual cash value,’” warns Wisconsin Insurance Commissioner Randy Blumer. Most homeowner policies contain replacement cost coverage on the home and actual cash value coverage on personal property.
Homeowners coverage policies automatically cover household contents – furniture, clothes, appliances, etc. – up to 40 percent of the amount your house is insured for. This means if you insure your house for $100,000, its contents are insured for up to $40,000. You can get more coverage by paying a higher premium. This automatic coverage pays only the actual cash value of damaged, stolen, or destroyed household goods. Actual cash value is 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.
Insurance companies generally want proof you replaced an item before paying your claim in full. An insurer might offer to replace the items instead of paying cash, but the choice is yours.
Many people learn after a fire or storm they didn’t have enough personal property coverage. Taking inventory will help you decide how much insurance you need. It also will simplify claims.
Your inventory should list each item, its value, and serial number. Photograph or videotape each room, including closets, open drawers, storage buildings, and your garage. Keep receipts for major items in a fireproof place.
What other protections does my policy provide?
Homeowners policies regularly provide other types of coverage, including off-premises theft protection and unauthorized use of your credit cards. Make sure you understand which provisions are included in the standard coverage you elect to purchase and which might require supplemental premiums.
Homeowners policies cover specific risks. Depending on what you own and where you live, you might need to supplement your policy with special coverage.
Homeowners policies do not cover flood damage. The National Flood Insurance Program (NFIP) offers flood coverage in many areas. Local insurance agents sell NFIP flood policies and can tell you about the program in your area.
For more information, call NFIP at 1-800-427-4661.
If a mortgage lender determines a home is in a special flood hazard area, the borrower might be required to purchase flood insurance.
If you are concerned about earthquakes, you can get coverage with a separate policy.
Extra coverage (Endorsements)
You might want more coverage for certain items than your policy provides. For an extra premium, you might be able to buy endorsements that expand or increase the coverage on these items. Some of the most common endorsements cover jewelry, fine arts, camera equipment, coin or stamp collections,computer equipment, and radio and television satellite dishes and antennas.
Personal umbrella liability insurance
If you want more liability coverage than a homeowners policy provides, you can buy a separate umbrella policy. Because policies vary, make sure the agent or company fully explains the coverage.
Higher deductibles, lower premiums
Deductibles allow you to cut the cost of your insurance, by assuming some of the risk. If you have a $250 deductible on your homeowners policy, you agree to pay $250 to cover any losses, before the insurance company pays the rest of your claim. By increasing that deductible to $1,000, you might save 20 to 30 percent on your premiums. You must decide whether lower deductibles or lowering your premium is right for you.