Did you know home insurance policies include a package of several types of coverage? From your home’s structure to the belongings inside of it, you should know exactly what types and how much home insurance is enough to meet your needs. In this post, we will explore the standard coverage available in the two most commonly purchased homeowners insurance policies – the HO-3 and HO-5.
What You Should Know About Home Insurance
Home insurance comes in many different forms. There are basic forms that satisfy lenders, but do very little to protect homeowners against potential losses. There are also more comprehensive forms, which extend broader coverage for a wide range of perils, shielding homeowners’ finances and helping them rebuild their lives when disaster strikes. Most homeowners choose the latter – specifically the HO-3 and HO-5 home insurance policies.
You should also know about a special rule called the ‘Co-Insurance Rule.’ It is enforced when you fail to insure your home for the correct amount. Under this rule, the insurer can penalize your coverage for even a partial loss, not to mention you risk falling short of the money you will need to rebuild your home after a total loss. For that reason, we recommend working closely with an agent here at Thiel Insurance Group to more accurately determine how much Wisconsin home insurance coverage you need.
Types of Coverage
Both the HO-3 and the HO-5 home insurance policies contain a package of coverages that work together to insure you against a wide range of events comprehensively. These include:
Coverage A on your insurance policy covers the structure of your home against all types of risks except the ones excluded in your policy. You should have enough Dwelling coverage to pay for clean-up and remediation when disaster strikes, as well as enough to rebuild a home of like size and with similar finishes.
Coverage B on your insurance policy is protection for structures on your property that are independent of the primary home. This might be a fence and driveway, or you may have multiple structures, such as a detached garage, pool house, and shed. Many insurers provide default coverage for other structures – usually equal to 10 percent of your Dwelling coverage. Talk to your agent if you feel these limits are inadequate to meet your needs.
Coverage C is protection for your home’s contents. This coverage also travels with you, providing coverage for your items away from home. Whether you lose everything in a house fire or a thief steals your laptop and luggage from your car, your home insurance has it covered up to the limit of your policy, which is usually between 50 and 80 percent of your Dwelling coverage.
HO-3 is more limited than HO-5 in how it covers personal belongings. The standard HO-3 coverage only protects belongings for damages or loss caused by certain named perils inside the policy. The HO-5 offers broader coverage, with protection for damages from all types of risks except the ones excluded in your policy.
Bonus Tip: To get an accurate calculation of your contents coverage needs, we recommend taking an inventory of your belongings and keeping it updated regularly. Several apps are available to help homeowners keep track of home contents and store inventory safely in the cloud. They also make it easy to update your inventory and access it from anywhere in the world in the event you need to declare a loss.
Loss of Use
Coverage D on your insurance policy covers your extra living expenses when you are temporarily displaced from your home due to a covered event. This can help cover the cost of meals, rent, a hotel, laundering services, and more. Loss of Use is included in both the HO-3 and HO-5 policies, usually with default limits equal to 20 percent of your Dwelling coverage.
Coverage E on your home insurance policy is coverage for personal liability when you or a member of your household is at-fault for another person’s injuries or property loss. Instead of paying for the damages from your personal savings accounts or your future monthly income, home insurance can pay for legal bills and judgments up to the limits of your policy.
Are You at Risk?
What are your risks as a homeowner? To start, you may be responsible for any accidents that occur on your property, whether it is a fall down your stairs or an injury in your swimming pool. However, your risks also extend beyond your property line. You could be sued for any third-party injury or property loss, whether your child hits a pedestrian with her bicycle or your dog bites someone. The damages can add up quickly, as well. According to the Insurance Information Institute, the average cost of a dog-bite claim is now over $37,000 – a number that is nearly double what it was in 2003.
All standard home insurance policies include coverage for personal liability, and as the policy-holder, you choose the amount of coverage. When selecting limits, it is important to understand your risk of being sued, as well as what you have to lose if a court determines you are at-fault. If you do not have enough personal liability insurance to cover the damages, you may have to pay for them yourself. That could mean tapping into your nest egg, liquidating some investments, mortgaging the equity in your home, or even garnishing your wages for years to come.
Although limits may vary, many homeowners choose a minimum of $100,000 to $300,000 to protect their income and assets. We recommend working with an independent agent here at Thiel Insurance to assess your individual risk and determine how much personal liability coverage is right for you.
Coverage F on your insurance policy provides payment for medical expenses when someone is injured on your property – even if you are not at-fault. This coverage typically pays between $1,000 and $5,000, which can be used to cover doctor’s bills, emergency room visits. With people choosing higher health insurance deductibles, this coverage can come in quite handy.
When the coverage in your standard home insurance policy just isn’t enough, endorsements can help close the gaps. These policy additions expand coverage to include extra benefits for certain types of losses and events. They offer optional protection for homeowners with risk vulnerabilities not covered under a standard policy.
Here at Thiel Insurance, our team recommends endorsements to individuals who:
- Own a home business
- Own expensive belongings such as jewelry or other collectibles
- Own a boat, atv, snowmobile, or golf cart
- Prefer compensation for belongings based on the cost to replace them, rather than the actual cash value
- Are at-risk of water damage due to sewer backup
These are just a few of the reasons you may need an endorsement. Once again, talk to one of our agents and we can help determine what endorsement are right for you and your family.
Beyond Home Insurance
In addition to home insurance personal liability, some homeowners may also need an umbrella policy to protect against major lawsuits and litigation. If you or a member of your household are sued for a serious injury or loss of life, the financial damages could reach hundreds of thousands or even millions of dollars. If your home insurance is not enough to cover the liability, umbrella insurance can supplement the coverage.