How much coverage do I need?

The most important thing about homeowners insurance is to have adequate coverage. If you do not purchase enough insurance, any loss may not be totally covered. For that reason, you may want to do a replacement cost estimate for the “dwelling” value and use our Personal Property Inventory & Calculator (PDF or XLS). These, and a discussion with your agent, can help determine the right amount you need. In addition look into a policy that increases your coverage limits at the rate of inflation.

For the liability portion you want to be sure your limit can protect you and all your assets against a judgment that might occur. Increasing your limits is usually inexpensive and can be offset by a higher deductible. In addition, umbrella policies that cover above both auto, home & RV policies are available at low cost. Again, a frank discussion with your independent agent can help in this decision.

How much coverage do I have?

Will your policy be enough to replace the structure (including foundation and debris removal) in the event of a loss? How much personal liability coverage do I have? How much is enough for my situation?

You should have enough liability to cover a large loss and cover your current and future assets against lawsuits.

What exactly does homeowner insurance cover?

“Exact” coverage is hard to define because there are different policies. However, about 80 percent of homeowners policies are based on a standard form, which we described in this guide. All homeowners policies cover two important areas: property and liability. Remember that you have to have protection against the proverbial thief in the night and the person who slips on your sidewalk by day.

What this means in insurance terms is that your homeowners policy has two basic components. It covers your structures, possessions, property insurance, and it furnishes protection against personal liability. Personal liability, as its name implies, means you are legally obligated to pay money to another person for actions caused by you, your family, or your property. That liability extends to medical payments to others for injuries caused by you or your family.

Is the coverage on my home adequate?

If you think the value of your home may have increased (if you remodel, construct a new addition, or make other significant upgrades) or if the cost to rebuild your home has increased, discuss the adequacy of your dwelling coverage with your agent. Market value is an indicator that the cost to replace your home may have increased, but insurance is based on “replacement cost” of the structure itself, not the market and/or land value. If your dwelling is underinsured it could mean you will not receive the full benefits available under the policy in the event of a loss.

What kinds of perils am I protected against?

Remember that policies vary but homeowners insurance usually covers damage to both structures and personal property caused by:

• Fire or lightning
• Windstorm or hail
• Explosions
• Riot or civil commotion
• Aircraft
• Vehicles
• Smoke
• Theft or vandalism (sometimes called malicious mischief)
• Falling objects
• Weight of ice, snow or sleet
• Freezing of a plumbing, heating, air conditioning or other such household system

In fact, your coverage is most likely even more comprehensive than the above list. Many homeowners policies cover damage by “just about everything,” unless the coverage is specifically excluded. In these cases, it is even more important to understand what is not covered.

Floods, earthquakes and other catastrophes

Most catastrophes are covered; for example, wind damage under the windstorm peril listed in the previous question and so are included. Yet in certain areas of the country (prone to hurricanes) wind may be excluded. Flood and earthquake damage, however, are also not covered by a standard policy.

Be careful not to be lulled into a false sense of geographic security. Flood and earthquake activity is more widespread than many people realize. For example, almost 90 percent of the U.S. population lives in seismically active areas. Since 1900, earthquakes have caused damage in all 50 states. And if your home is located in a flood-prone area, you are 26 times more likely to suffer a flood loss than a loss from fire. Check out the Natural Disaster Risk Map.

You may want to check with your agent about special catastrophic policies for normally excluded conditions like floods, earthquakes or wind if excluded in your area. Of course, the cost of such extra coverage may reflect the high risk involved. If you live along a shoreline, for example, expect to pay a higher premium for flood coverage than someone living on a mountaintop would pay.

Are there any other exclusions or limits I should know about?

There may be other exclusions spelled out in your policy such as neglect, intentional loss, earth movement, general power failure and even damage caused by war. Limits may also be placed on Mold damage, and on certain personal property like jewelry, silver, cameras, etc (see below)

If you neglect to take care of your property (e.g., a leaky roof), you may not be covered. Obviously, if you intend to lose an object or damage your property, there is no coverage.

One other exclusion that can be costly is the Ordinance or Law exclusion. Building codes established by governmental bodies that drive up the cost of rebuilding or repairing after a loss occurs may not be covered by your insurance policy. Thus, if you discover when replacing damaged property that current law demands higher grade or more expensive materials than the original ones being replaced, the new materials may not be covered for the full price.

Even if you live in a fairly new home, laws and building codes are constantly being updated. Coverage to include ordinance or law requirements can be added to your homeowners policy with an endorsement an addition that could save you money in the long run.

Are the backyard shed and my color TV both covered in my homeowners policy?

Yes, they are both your property so they are both covered. The value of the real property “your home, garage, shed and other structures is generally based on the value of the main structure, the house itself. Thus, if the house were insured for $75,000, the shed, detached garage and other auxiliary structures would be covered for 10 percent or $7,500 worth of damages. Additional property protection features may include living expenses should your home not be habitable for a period of time.

Your personal property is also covered by a homeowners insurance policy. Personal property includes the contents of your home and personal belongings used, owned, worn, or carried by you or members of your household basically, everything and the kitchen sink! This coverage is also based on the house coverage, and there are limits on the losses that can be claimed. Higher limits can be purchased for both real and personal property.

Does my policy cover my possessions even when I go on vacation?

Yes, perhaps in this case the term “homeowners” is misleading because this is a package of insurance coverage that extends to all your possessions no matter where they are. If you take a round-the-world vacation and lose a valuable item, as long as the loss is by a covered event or peril, the location does not matter.

The liability component also extends well beyond the boundaries of your home. Should you be found legally at fault for injury or loss to another individual, whether you unfortunately caused a tumble down a San Francisco hill or a fall in an Indiana barn, that is personal liability which again is addressed in your homeowners policy.

As in the property section of your homeowners policy, there are limits and exclusions to personal liability. Your business activities, for example, are not covered under a homeowners policy. You are also not covered for injuries or damage you purposely cause. So if a fight with a neighbor turns physical and you end up bopping him on the nose, your homeowners insurance will not cover the injury or any resulting suit. Your policy lists specific exclusions and limits.

I rent out my basement. Are my tenants covered by my homeowners policy?

No. Your property and the structure (the basement) are covered by your policy as is your personal liability. However, the tenants’ possessions and liability are not covered by your policy. Therefore, they may wish to purchase their own renters insurance. Whether you are a lessor or a renter, you should check with your agent to make sure you have the coverage that is right for you.

My mother lives with us in a separate in-law suite. Are her possessions covered?

As a member of the family, she is probably covered under your homeowners policy. So too is your child away at college covered for personal liability or theft or damage to his or her property even in the dormitory or college apartment. However, you should check with your agent to be sure you have chosen the coverage that is right for you.

What about our vacation home in the next state?

Insurance companies can operate in more than one state so the company that carries your primary residence may issue a policy for your vacation home. Personal liability may covered in the first homeowners policy so the second policy mayneed cover only property. This type of policy is called a “dwelling policy.” Check with your agent for specifics to your company/policy.

If you rent out your second home for all or part of the year, your homeowners policy may need to be endorsed (added to) to cover the increased liability exposure. The renter’s property is not covered under your dwelling policy. Should damage occur while someone is renting your property, they will need to check with their own agent about their coverage.

I work out of my home. Are my inventory and business property covered?

Yes, but within certain limits. Both are covered as personal property used for business purposes. However, like all personal property, there are monetary limits on reimbursement. Whether your home business is your primary occupation or a hobby that nets you a few hundred dollars a year, it is still a business and you should treat it as such. If you’ve invested quite a bit in equipment (woodworking tools, for example) and sell the occasional decoy, you should consider whether the personal property limits are sufficient.

Also, keep in mind that the personal liability protection in your homeowners policy does not extend to business liability. Check with your agent concerning your business insurance needs.

Is the coverage on the contents of my home adequate?

It’s amazing how quick just the common things we own can add up. If you receive an inheritance or valuable gifts, buy a new computer or large appliances, or if you sell off significant amounts of personal property, talk to your agent to be sure that your contents coverage is appropriate.

Do I have Replacement Cost or Actual Cash Value coverage on my dwelling? On my contents?

Replacement cost is what it would cost to completely replace your house or any part of it, or replace your belongings with new items of “like kind and quality” without deduction for depreciation. Rebuilding your home could cost more or less than the “market value” of your house.

Insurance policies often restrict the amount of replacement coverage. Make sure you understand the maximum limit on your replacement cost coverage.

Actual Cash Value (ACV) is the cost to repair or replace the damaged property with materials of like kind and quality, less depreciation of the damaged property. This generally applies to your “contents” coverage but there are policies that pay ACV on dwellings, as well.

Do I have or need coverage for “Increased Cost to Changes in Building Ordinances”?

When building a house, there are government requirements that builders have to follow (using a certain type of wiring or installing sprinklers, for example). These changes can increase the cost of rebuilding your home. You can purchase coverage on your homeowners policy to pay this additional cost in case of a loss.

Do I have or need “Inflation Guard” protection?

Many homeowners insurance policies issued today provide this, but you should ask your agent about it. This coverage automatically increases the amount of dwelling insurance to help prevent your home from being under-insured.

Do I have or need special coverage for adjacent structures, jewelry, firearms, furs, art, or computers?

Most homeowner policies provide some basic, very limited coverage for these items. However, depending on the amount and value of your property, you might want to purchase additional coverage.

Do I have certain possessions — computer equipment, cameras, jewelry — whose replacement values far surpass normal coverage limits in my policy?

Standard policies may not come near covering the replacement costs of even moderate amounts of home electronics hardware or expensive possessions. For relatively small amounts, you can purchase “floaters” that will add protection to certain types of personal property.

If present trends continue, it’s not too far off the mark to say that in 10 years, every adult in the United States will have a home-based business or office. Equipment and related business assets may not be satisfactorily covered unless you obtain additional protection.