Buying a home is an exciting and sometimes confusing time. You have spent months searching for the perfect home for your stage of life, and now you have finally found it! Most of the times consumers see this as the “hard part,” but then quickly find out it is typically the “easy part” as then comes all the paperwork. The lender is asking for proof of insurance and has to have it before you can close. Many times people call their current company and sign without knowing what to look for. Here is a breakdown of what homeowners coverages mean and some helpful tips to protect your new investment.
Coverage A, B, C and all the other ones
Before we look at what to make sure you have, let’s breakdown your coverages under the typical HO3 policy. Coverage A is what the house, as a structure, is covered for. Make sure that if your new home is not insured at full replacement cost (the cost of what it would take to rebuild your house is in today’s construction values) that it is covered for at least 80% of that number. This is because with many companies, if you do not meet the 80% rule, when you go to file a claim, you could incur a coinsurance penalty, which translates to less money to rebuild your home if you have a complete loss, like a fire. Even with inflation guard, keeping your insurance agent up-to-date on any renovations or additions you make to your home is the best way to stay fully protected.
Coverage B, C, and D are just percentages of Coverage A, and you are not charged more for these coverages. Coverage B is for other structures, such as detached garages, barns, fences, pools, etc. and is typically 10% of what Coverage A is. Coverage C is for personal property. Imagine taking your home and any detached structures, tipping them upside down and shaking it. Anything that would fall out is considered personal property. Typically coverage is at 50%-80% of Coverage A. Coverage D is for loss of use. This would be for rent or hotel rooms if you could not inhabit your house after a claim while repairs were being made. Coverage E is personal liability and Coverage F is medical payments to others. How I like to explain this is if your friend Billy Bob came over, tripped on the steps and broke his arm and needed stiches, your insurance company would take care of his medical bills up to $5,000 in good faith that he wouldn’t sue you. If Billy Bob is kind of a crappy friend and sues you, your personal liability limit would “kick in.” I highly suggest you get the highest limits on both of these, typically $5,000 for medical payments and $1,000,000 for liability. This is because it is usually a minimal cost and when little Johnny has a bunch of friends over for a birthday party with a bounce house, you will have peace of mind knowing you are covered.
Actual Cash Value of Roof Surfacing
This is an important part to look at as many consumers don’t realize it can give them thousands of dollars less in coverage. What actual cash value of roof surfacing does is gives you a depreciated amount for your roof. So, when that hail storm comes through, what an adjuster will do is look at the damage, take what it costs to replace/repair the roof and then subtract the age and condition of your roof. If your roof is newer or steel, you don’t typically need to worry about this and in fact it saves you money as that gap between a new roof and your roof isn’t that large. However, if your roof is 10+ years old and not in the best condition, you will see a large chunk of your claims check gone due to this. Many companies offer replacement cost if the roof is less than a certain age or condition. This would give you the money for a brand new roof, not what your roof is worth.
Replacement Cost on Personal Property
This is something I always include on policies and only take off if the client specifically asks for it. This gives you the money, up until your Coverage C limit, to replace your items with new items not what they are worth. So, this would mean you can go buy new, like items and not shop Craigslist for appliances, electronics, clothes, etc.
Water Back up and Sump Pump Overflow
If you have any part of your basement finished or have expensive items down there like furnace, hot water heaters, washer/dryer, etc. it is very important that you consider this endorsement. How water claims work with basements is if the water comes from the outside in, there is no coverage unless you have this endorsement. This also includes if your sump pump fails, or quits working and your basement floods. So, if there is anything besides dust bunnies, and high school yearbooks in your basement, consider adding this coverage to your policy.
Deductibles are the portion you pay before your insurance company covers a loss. For example, one of your sweet angels throws a baseball through your picture window. The cost to replace the window is $900 and your homeowners deductible is $1,000. Your insurance company will cover $0 and little Johnny will have to do extra chores… not speaking from experience of course.
About 10 years ago, most insurance companies came out with what’s called a “wind/hail deductible.” As wind, tornadoes and hail damages are common claims, insurance companies put a higher amount of damage that would need to occur before they would cover anything. Many times it is 1% of what your home is insured for. So, if your home is insured for $250,000 you would have to have $2,500 worth of loss due to wind or hail before they would cover anything AND that would be deducted from the claims payment you receive. For many companies, you can get a flat deductible ($1,000, $1,500, $2,500, etc.) for a little extra premium each year. So, if you have a bank account with the amount of your wind/hail deductible at all times, keep your wind/hail deductible and consider raising your other deductible (for fire, falling objects, etc.) to match as that will save you money each year.
So there you have it! Lots of information, ways to save and most importantly make sure you are properly protected for where you want to be. It is important to go over your policy with your agent before signing it, so that you know what you are covered for. The 30 minutes it takes to go over everything could save you thousands of dollars at the time of a claim. I always suggest going over it 3-5 years to make sure everything is current. Know your policy, know your agent and if you don’t know either, maybe it’s time to shop around.