Homeowners Insurance: Coverage

Homeowners Insurance: Coverage

So yesterday, I made an introduction to homeowners insurance, and talked about the different types of policies, as well as the parts of the policy.  Today I'd like to talk about coverage, and how much to get.

Remember yesterday I said that technically by law, you don't need homeowners insurance?  That is still true, but honestly for the cost, it almost seems foolish to not have homeowners insurance.  And in reality, if you are going through a lending institution, you are most likely required to have insurance.  It really is common sense for the lending institution; if you have a house fire and it does thousands of dollars in damage, or worse, destroys your home, what incentive do you have to pay back your mortgage?  Why would anyone make payments on a house they don't have anymore?  Sure, we have the good faith of humanity which says you signed on the dotted line, so you're going to pay it.  Would you really?  It's that single seed of doubt that makes lending institutions cringe at the thought of a piece of property which they own not being protected.  Much like the lending institution having concerns about losing on an investment they made, you should equally be concerned if for whatever reason you are not required to have homeowners insurance.  The "what if" is scary, and our good friend Murphy follows us around regardless of being invited or not.  Instead, the question should be "why not?"

So let me explain a bit more about liability coverage.  Most homeowners insurance policies will come with a fixed amount of coverage.  You can always purchase more than the standard amount.  Some reasons you would want to consider this are:

  • You want to cover the value of other assets such as your home, savings, and other financial ties you have.  Remember, if someone sues you because of an incident at your dwelling, your home as well as personal assets are subject to the lawsuit and can actually be seized if you are not appropriately protected
  • You want to increase your coverage because the reality is the insurance policy will only pay for what you are covered for.  You are personally responsible for anything above and beyond what your policy covers.  Again, this could leave your financial assets subject to lawsuits
  • The actual cost to get more liability coverage is extremely reasonable, to the point where it's practically silly not to have more.  According to vermont.gov, additional liability coverage in many cases can be doubled for somewhere in the range of ten to twelve dollars.

So how do you know if you really have enough insurance?  Insurance policies have standard limits for loss of use, personal property, and additional structures.  While not set in stone, to give you a good idea of what kind of coverage you can expect, many companies use the following percentages to figure coverage:

  • Loss of use:  1% - 20% of dwelling
  • Personal property:  50% of dwelling
  • Other structures:  10% of dwelling

Real Life Example:  If you have a dwelling policy that covers $100,000, and you have a personal property claim, it would cover up to 50% or $50,000.  So if you have personal property that you anticipate has an estimated value of $70,000, your policy would cover $50,000 and you would be liable for the other $20,000.  Essentially, you would lose $20,000 in personal property because your coverage was too low.

Something to take into account:  Some limits can also apply to other property such as jewelry or other precious items which may have a higher than normal value.  To cover these items, you would either need to increase your overall coverage to make sure it's insured, or you can purchase a "special endorsement" which explicitly covers special items you wish to cover.

Overlooked?  It may not get covered!  If you don't know what you have in your dwelling, it's hard to make a claim for it.  A great starting place is to walk around with your camera (cell phone, tablet, old time camera, anything really) and take pictures of everything that you think is valuable and if it were lost or damaged you'd want to make a claim to have it replaced.  Take a picture of anything that has an abnormal value, such as jewelry or other high ticket items, as these are items which may be subject to more scrutiny when a claim is filed.  Anything that you have which may be of questionable value you should keep a receipt for, along with the photograph of it.  Those photographs and receipts should be kept in a safe location, ideally not at your home, in a safety deposit box or other location.  If your home is damaged or lost, and your photos and receipts were inside, you really are left with nothing.  While having a "fire proof safe" in your home is better than nothing, I would still suggest not having these photos and receipts in the home just in case.

Remember, making this inventory now while there is no emotional duress due to losing everything you hold dear is extremely important.  If your house burns down and the first question you get asked is "what did you lose?" you might not be able to recall much of anything.  Honestly at that point, the last thing you are probably thinking about is what you lost.  It's too overwhelming.  Be prepared, be diligent, and you should be prepared should the worst case scenario ever pan out.

In the mean time, let's hope it doesn't!  More to follow tomorrow.

Share this post