It’s a pretty amazing feeling to look around inside your first house. The future looks bright. A few coats of paint here and there, new furniture to freshen the place up, and a flat screen TV mounted on the wall will make this place feel like home in no time. The best part is…it’s yours! You survived the pre-qualification at the bank, the evening and weekend trips across town with your realtor, and the final inspection came through with only a few small repairs that you can handle on your own, no problem. This life goal can be crossed off the list!
I love working first time homeowners. You can usually feel the excitement coming through the phone. Sometimes though, you can also hear the stress weighing down on them. The home buying process can drag on, and surprises are sure to come up. Insurance is an important part of the buying process, but I know there are times when the policy review appointment I have with new clients falls on deaf ears. Not because they don’t care, but because they are just ready to move on…and move in!
So, for those of you who are just starting the process, or those of you who bought a house a couple of months ago and are just starting to feel normal again, take some time to look this over and get an idea of what your home insurance policy actually does to protect your most valuable asset .
Dwelling Coverage
This may also be listed as “Coverage A” on your home policy. Essentially, this is the amount of coverage that your home is insured for. When dealing with a bank, they will require coverage for at least the loan amount.
The insurance company will use their own “Replacement Cost Calculator” to determine how much it would take to replace your home if it were totally destroyed (i.e. fire, tornado). If you are fortunate enough to put a nice down payment on the house, your dwelling coverage may be more than what the bank requires you to have, and that’s ok. You want to make sure you have the proper coverage to replace your home if you need to rebuild.
As a side note, many companies offer “Additional Replacement Cost” coverage. This gives you coverage in addition to your Coverage A amount, usually 25% to 50%. For instance, if a large storm wipes out a section of your town or city, the cost of building materials may increase due to supply and demand. Additional Replacement Cost can help with these unforseen expenses.
Other Structures Coverage
Also known as “Coverage B”, this is coverage for things like a detached garage, detached storage shed, privacy fence, playground set, etc. Essentially, a structure that is not attached to the house.
Coverage typically starts at 10% of the Dwelling Coverage, but this can be increased if needed.
Personal Property Coverage
Coverage C, is coverage for your “stuff”. Clothes, furniture, appliances, electronics, etc. Insurance companies may vary on the amount of coverage that is included with the initial quote, but the amount of coverage can be increased if needed. This is also a percentage of Coverage A, and can range from 50% to 75% of the dwelling coverage.
Side note: If you have jewelry, guns, or collectibles of any kind, you may want to think about getting those items insured as “Scheduled Personal Property”. This can be done as an addition to the home policy, or as a completely separate insurance policy, known as a Personal Articles Policy. While these items may be covered under Coverage C, the coverage amount may be limited, and it would be subject to whatever your home deductible happens to be.
Medical Payments Coverage
Medical Payments is coverage for anyone who may be injured on your property that doesn’t already live there. The amount of coverage can vary, but typically a policy will offer coverage in the range of $1,000 to $5,000.
Example: Grandma and Grandpa are enjoying a weekend with the grand kids when one of them accidentally gets their fingers slammed in a door. Grandma take the little one in to the ER to make sure nothing is broken. If she chooses, she can file a claim on her home policy to help pay for the medical bills that are incurred so mom and dad don’t have a bunch of medical bills waiting for them when they get home.
Liability Coverage
In 2017, homeowners insurance companies paid out over $686 million dollars in liability claims for dog bites according to the Information Insurance Institute (III). The average payout in 2017 per claim was $37,051, up almost $4,000 from the 2016 numbers.
Liability coverage is in place on a home policy for injuries or damages sustained by others on your property.
Loss of Use
Loss of use is coverage that is in place to help pay for expenses in the event you can’t live in your home. For instance, if you try out a new fried chicken recipe and things get out of hand in the kitchen, you’ll be glad you have this. Whether your forced vacation is short-term (maybe a couple of weeks), or more extensive (6 months to 1 year), this will help with the expenses that are incurred. Short term may be a hotel stay, groceries, meals out, etc. Long term may involve renting a new place (home or apartment), and the bills that are associated with that.
Most companies determine the coverage in one of two ways: 1.) Time Period. Your policy may allow all expenses to be paid within, let’s say, a 12 month period, or 2.) Specific Dollar Amount. With this option, expenses are paid up to the specific amount listed on the policy.
The coverage’s listed above are common with most insurance policies. Keep in mind, there are other coverages and add-on’s (also known as endorsements) that you should talk to your agent about. These add-on’s can enhance your policy and give some added protection that may be specific to your situation. Some of these coverages include, but are not limited to:
- Scheduled Personal Property (as noted earlier in this post)
- Sewer Back-up coverage
- Building Ordinance and Law Coverage
- Service Line Coverage (this endrosement is a recent addition with some companies)
Your largest investment deserves the proper protection. The process of buying a home can be a rollercoaster. Once your are settled in, take some time to review your home insurance policy, or call your agent and schedule a time to sit down with them. Make sure you understand what risks you are covered, and also what exposures you might have.