From record-setting inclement weather to fires, theft, vandalism, and liability, endless hazards can threaten your home, belongings, and financial assets, yet many homeowners still purchase only enough coverage to satisfy mortgage lenders, ultimately putting themselves and their homes at risk. Here at Imes Insurance Associates, our goal is to prevent our clients from making this critical mistake. In this article, we will explain the importance of having the right coverage and calculating how much home insurance is enough to meet your needs.
Why Choose HO-3 or HO-5?
Arizona homeowners can choose from several types of home insurance policies. The two most common, an HO-3 or HO-5, can provide customizable coverage for all the structures on your property and the loss of use of your home. These policies also reimburse policy-holders for the loss of personal belongings, though they vary in the types of events they cover. HO-3 generally covers damage and theft of possessions due to named perils, whereas HO-5 covers damage and theft caused by all risks except the named exclusions in the policy.
Dwelling
Coverage A on your insurance policy is ‘Dwelling Coverage,’ (the sticks and the bricks), which pays for damages to the structure of your home. Both HO-3 and HO-5 cover damages for all risks except those excluded in the policy.
Here at Imes Insurance Associates, we always recommend insuring your home for its replacement value, regardless of your mortgage. This ensures access to enough capital to repair or rebuild your home after a partial or total loss.
Several factors affect your Dwelling coverage needs. Examples include:
- Debris clean-up costs
- Home size
- Home materials and finishes
- Current local construction cost estimates (Rebuilding your home today may cost more than it did in the past)
Co-Insurance Rule
Homeowners who under-insure their home are subject to enforcement of the ‘Co-Insurance Rule.’ This rule allows the insurance company to reduce the amount of your claim in the case of a partial loss if the amount you insure your home for is less than a certain percent of the actual replacement cost value. Our process in preparing your homeowners insurance includes calculating the amount of coverage you should be insuring your home for to avoid penalties of the ‘Co-Insurance Rule’.
Other Structures
Home insurance includes coverage for additional structures on your property by default. It pays for damages to free-standing structures that are separate from your home’s primary structure. Examples include your:
- Gazebo
- Patio
- Swimming pool
- Detached garage
- Fence
- And more
Unless you request additional coverage, most insurers include ‘Other Structures’ coverage equivalent to approximately 10 percent of your Dwelling coverage.
Personal Belongings Coverage
If you lose your home, you lose your possessions. Imagine starting over again, buying new furniture, clothes, appliances, household goods, and electronics. You could easily spend tens or even hundreds of thousands of dollars replacing the items you no longer have. With the proper home insurance policy, your possessions are covered against a wide range of perils. ‘Personal Belongings’ coverage reimburses you for your loss with the actual cash value of your damaged or stolen goods. However, you may choose to add a policy endorsement that allows for reimbursement based on the replacement cost of your belongings, rather than their depreciated value.
Most insurance policies provide default personal belongings coverage for between 50 and 80 percent of the Dwelling limit. To ensure you are adequately covered, take inventory of your home to calculate the value of your belongings. Then, talk with an agent here at Imes Insurance Associates if you think you may need additional coverage beyond your current limits.
Loss of Use Coverage
If you are displaced from your home, ‘Loss of Use’ coverage pays for related expenses that exceed your normal cost of living. This allows you to continue paying the mortgage on your damaged home while also paying hotel charges or rent for a temporary residence. Insurers typically include default coverage equal to about 20 percent of your Dwelling coverage limit.
Personal Liability
If you are sued for third-party property damages or injuries, personal liability coverage can help pay for your legal expenses and financial responsibility up to the limits of your policy. At Imes Insurance Associates, we cannot emphasize enough the importance of having adequate personal liability coverage to protect your income and assets against litigation. With some exceptions, most policies include coverage for accidents on your property, as well as those you or the members of your household are responsible for causing away from home.
Types of Losses
Although personal liability coverage is typically very broad, there are certain types of losses, such as accidental falls, that are more common than others. For example, dog bites are one of the leading causes of personal liability claims in the U.S., representing more than one-third of claims in 2015. If your dog bites a neighbor or even another pet, you could be responsible for the damages. Though claim values vary depending on the severity of the injury, the average dog bite claim costs more than $37,000.
Protect your assets by purchasing adequate personal liability coverage. Many Phoenix valley area homeowners choose high-limit coverage between $300,000 and $500,000, although we here at Imes Insurance Associates can assist you in determining which limits are right for you.
Medical Payments
It does not matter who is responsible if someone is injured on your property; what matters is that they get the medical attention they need as soon as possible. Medical payments coverage helps pay for emergency room and doctor visits when a third-party is injured at your home regardless of fault. We here at Imes Insurance Associates can help you select a medical payments coverage limit, which is usually between $1,000 and $5,000.
Endorsements
Endorsements help the pieces of your insurance policy fit together with as few gaps as possible. These optional policy additions provide additional coverage for certain risk exposures, some of which include:
- Water backup and sewer coverage
- Home business coverage
- Scheduled coverage for valuable belongings
- Full replacement cost coverage for personal belongings
Most homeowners will not need every available endorsement, but most will benefit from at least some. Our job here at Imes Insurance Associates is to help you minimize your risk vulnerability by helping you determine which endorsements are right for you.
Beyond Home Insurance
Home insurance can protect you against many different loss events, but even the highest personal liability limits may fall short of protecting you in a major lawsuit. When homeowners are sued for large sums, even a $300,000 limit might only cover a fraction of the damages. Umbrella insurance can help pick up where home insurance leaves off, providing supplemental coverage of $1 million or more. Umbrella policies are flexible, providing additional coverage when you exhaust the limits on your primary liability, whether for claims against your homeowners, auto, or boat insurance policy. An umbrella policy is an affordable way to protect your family and future against financial devastation.
To find out more about umbrella insurance and whether it is right for you, contact our office today.
