It’s the goal of nearly every homeowner: Purchase a home insurance policy that protects your home, belongings, and assets against loss – all without overpaying for coverage. Of course, determining how much home insurance is enough requires careful consideration of several key factors, such as the value of the home and whether you want your personal belongings insured for their replacement cost or their depreciated value. In this article, we will help you calculate your coverage needs and explain the standard coverages included in two of the most commonly purchased policies – the HO-3 and HO-5.
HO-3 vs. HO-5: What’s the Difference?
There are several types of home insurance sold here in Wisconsin, the most popular of which are the HO-3 and HO-5 policies. These two policies offer several different coverages – not just protection for your home. In fact, the primary difference between the two forms of coverage is found in their Personal Belongings coverage. HO-3 helps pay only for losses that occur as the result of a named peril listed in the policy. HO-5 is more extensive, helping to pay for losses that occur as a result of any event that is not excluded in the policy.
Coverage A – Dwelling
The first coverage on a typical insurance policy establishes coverage for your home’s primary structure. It is designed to help with the cost of repairing or rebuilding your house up to the limits of your policy. As a policy-holder, you pay a deductible toward the cost of any damage claims. Although you can select an amount as low as $500, choosing a higher deductible could significantly lower your annual premiums.
Choosing Your Coverage
It’s not enough to simply insure your home based on the price you paid for it or the balance on your mortgage. While that may satisfy the terms of your lender, it could result in a financial shortfall if you need to file a claim. Instead, we recommend working with an agent here at Ellis Insurance to calculate your unique coverage needs. We consider many factors, including the average cost of construction in our area and the cost to clean-up your property after a fire or other disaster.
By protecting your home with adequate coverage, you help ensure you have the funding to rebuild a home with similar materials and finishes if you ever face a loss. You also avoid subjection to the ‘Co-Insurance Rule.’ Under this provision, insurers hold the right to underpay for partial loss claims in relation to the amount your home is underinsured as a whole.
Coverage B – Other Structures
Though Coverage A protects the primary structure of your home, it does not extend coverage to other structures on your property. Coverage B is designed to provide many of the same types of protections for independent structures, such as detached garages, fences, and carports. Default coverage is often included at no additional charge, usually for about 10 percent of your Coverage A limit.
Coverage C – Personal Belongings
Coverage C helps reimburse you for the loss of your possessions due to a covered event. This could be a fire that destroys your home or a car break-in that leaves you without a wallet and laptop. By filing a claim against your home insurance, you can recover some of your losses up to the limits of your policy.
Most insurance policies include default protection for Coverage C that is equal to between 50-80 percent of Coverage A limits. While this is enough for many people, some homeowners require additional coverage, particularly for high-value items that exceed the classification limits on coverage. An agent here at Ellis Insurance will be happy to help you schedule additional coverage for any assets that exceed the limits of your policy.
If you’ve never calculated the value of the things you own, take an inventory of your home, and list every possession. The numbers can add up to tens of thousands of dollars – particularly if you factor in the cost of replacing those items with brand new ones. Although Coverage C provides standard coverage for personal belongings based on their cash value, you can add an endorsement to your policy that will increase your coverage to include the replacement value of your items.
Coverage D – Loss of Use
Coverage D is the section of your insurance policy that reimburses you for financial losses, particularly the extra cost of living when you are displaced from your home due to a covered event. Loss of Use coverage can help you pay for a temporary apartment or cover the cost of your hotel charges up to the limits of your policy, which are usually about 20 percent of your Coverage A limit.
Coverage E – Personal Liability
Coverage E is the section of your insurance policy that helps pay for the damages you owe other people who do not live in your home. Personal liability coverage makes payments to others for bodily injuries and property damages incurred due to an accident on your property or the covered actions and negligence of people and animals living in your household. That means you are covered for lawsuits stemming from incidents occurring both in your home and wherever you travel, with certain exceptions such as auto and boat-related accidents.
Types of Losses
Homeowners can be sued for a wide range of losses and damages, some of which are more common than others. For example, Wisconsin breaks the top 10 states for bite and other dog-related injury claims in both 2014 and 2015, with the average cost per claim over $34,000. It’s not just notorious breeds that cause injury, either. All dogs have the potential to bite – including the smallest and most docile pets.
Other injuries and losses are also possible. If a party guest falls down the stairs of your home, he could sue you for medical and rehabilitative costs and perhaps even the loss of future earnings if the injury results in a disability. These costs can quickly climb to tens or even hundreds of thousands of dollars, which is why many homeowners could benefit from a minimum of $100,000 to $300,000 in liability coverage. Without adequate protection, there is plenty to lose. Victims can pursue your savings accounts, the equity in your assets, and even your future earnings to satisfy a claim.
Coverage F – Medical Payments
Coverage F is the section of your insurance policy that issues payments for medical expenses when someone is injured on your property, regardless of fault. It can help cover the stitches for a laceration or the health insurance deductible for an emergency room visit. This assures injured parties get the medical attention they need and may even help prevent a lawsuit. Most medical payments coverage is limited between $1,000 and $5,000, but an agent here at Ellis Insurance will be happy to help you select a limit that is right for you.
The endorsements on your insurance policy are all optional, but they can provide valuable protection and help bridge any gaps left by your standard coverage. In fact, many of them are highly recommended for most policy-holders, whereas others may only be appropriate if you have certain risk exposures.
For example, nearly all homeowners can benefit from water backup and sewer endorsements, which can save thousands in the event a backup floods your home. We also recommend implementing an automatic inflation guard endorsement, as well as increasing protection for personal property losses to include full replacement coverage. Other endorsements may also be necessary, particularly if you operate a business from your home or own high-value personal belongings.
Beyond Home Insurance
While we here at Ellis Insurance work hard to provide complete protection for homeowners, there are certain situations in which even the highest liability limits fall short. For these scenarios, we recommend purchasing an umbrella policy that supplements your liability protection with an additional $1 million or more in coverage. Umbrella policies are very inexpensive – often costing less than $200 per year – yet they have the potential to prevent financial ruin in the event of a major lawsuit. If you are liable for a judgment or settlement that exceeds the limits of your homeowners liability coverage, umbrella insurance can help pay for excess damages.
For more information about umbrella insurance or to find out if it is right for you, contact an agent here at Ellis Insurance today.