Home insurance is an important purchase for homeowners, not only to satisfy a mortgage agreement, but also to protect the structure of the home, its contents, and the homeowner’s financial assets. Most home insurance policies include a full package of coverages. In this article, we will explore the coverages available in two of the most commonly selected policies – the HO-3 and HO-5. You’ll learn why these coverages are so important and how to determine how much home insurance is enough for you.
Why Choose HO-3 or HO-5?
There are many different types of home insurance, of which HO-3 and HO-5 are the most frequently purchased. These two policies provide a broad range of coverages – not just protection for your home. While both offer open peril protection that covers damages to your home’s structure from all non-excluded risks, only HO-5 offers open peril risk coverage for Personal Belongings coverage, too. If you have an HO-3, your personal belongings are only covered for damages and loss due to specific, named hazards in your policy.
Homeowners insurance includes coverage for your dwelling. When it comes to deciding how much coverage to purchase for the structure of your home, remember one thing; always insure your house for its replacement value. The price you paid, your mortgage balance, and the value of your lot have nothing to do with how much it will cost to rebuild your home after a loss. Not only does this help assure that you will have the money to rebuild, but it also prevents you from falling short of funding for partial claims due to the ‘Co-Insurance Rule.’ When enforced, this rule allows the insurer to under-fund your claims if your home is not insured up to what is required by your policy.
Once you select a limit for your coverage, you will also need to choose a deductible. This is the amount you pay when you file a claim for damage to your home. It could be as little as $500, which is less financially burdensome after an incident, or you could select a higher deductible of $1,000 to $2,000 in an effort to minimize the cost of your annual premiums.
For help calculating your reconstruction costs, let our team use a Home Cost Estimator to evaluate your individual coverage needs.
Other Structures Coverage
The next coverage listed on your insurance policy is the protection extended to additional structures and buildings on your property. It typically protects your fence, detached garage, gazebo, and just about any independent structure on your property against the hazards your dwelling is protected against, and often at no additional cost. In fact, many insurers include coverage equal to about 10 percent of your Dwelling coverage by default.
Personal Belongings Coverage
If you lose your home or a thief breaks in, you could lose tens or even hundreds of thousands of dollars in belongings. If you’ve never added up the value of your belongings, there is no better time than now to take inventory of your home and possessions. While home insurance can reimburse you for the loss, having an accessible and up-to-date home inventory can make it easier to declare your losses. We recommend storing your home inventory in a safe place away from your home or otherwise online or in a mobile app.
Insurance typically includes coverage for personal belongings by default, usually with limits ranging between 50 and 80 percent of your Dwelling limit. However, you may need additional coverage if you have extensive possessions or high-value possessions that exceed additional dollar limitations on your policy. Talk to an agent here at Integrity Insurance for help assessing your coverage needs.
Loss of Use Coverage
If you lose access to your home while it is being repaired, you can expect to pay hundreds or perhaps thousands of dollars in a hotel, not to mention restaurant meals until you have a kitchen to cook in again. The costs could climb even higher in the event of a total loss, during which time you may need to lease a temporary home or apartment. Fortunately, standard home insurance includes coverage for Loss of Use, usually up to 20 percent of the value of your Dwelling limit. You can use this money to pay for additional living expenses until you are no longer displaced from your home.
Both HO-3 and HO-5 provide coverage for personal liability, which includes third-party injuries and property damages you or the members of your household are responsible for. Having the right personal liability limits could shield you against judgments and legal fees totaling tens or even hundreds of thousands of dollars during a lawsuit. Without it, you could be personally responsible for damages, forcing you to liquidate your savings and assets, or perhaps even make payment from future income to satisfy your debt.
Here at Integrity Insurance Agency, we know that bad things happen to good people. It may not even be your own negligence that results in a loss – just a series of unfortunate events. Often, it is a family dog that injures a guest or another pet that leads to litigation. In fact, dog-related injuries represented more than one-third of home insurance liability claims in 2015, with an average cost-per-claim of more than $37,000.
The most important step you can take to protect yourself and your family against a lawsuit is to choose adequate personal liability coverage limits. Even if you do not have a significant accumulation of assets, a lawsuit could still affect you if you can earn future income. We typically recommend high-limit coverage of at least $100,000 to $300,000. Once insured, this coverage will generally cover you for incidents occurring both in your home and away from it, except certain events like car and boat accidents.
You do your best to keep your home as safe as possible, but hazards can still lurk for unsuspecting guests. Perhaps your banister breaks, causing a guest to fall down the stairs. Maybe a child pulls a vase off a table and onto her head, requiring that she visit an emergency room for stitches. Whatever the cause, medical payments coverage helps pay for medical bills when a third-party is injured on your property – even if you are not at-fault.
This coverage comes with low limits, usually between $1,000 and $5,000. Usually enough to cover a doctor’s visit or a health insurance deductible. For help determining how much medical payments coverage is right for you, contact our office today.
Endorsements provide enhancements to your policy that seal gaps in your coverage and help protect against specific risk exposures. These optional policy additions can increase the benefit you receive from a claim and also make you eligible to receive compensation for certain events not covered by standard home insurance coverage. We recommend talking with an agent here at Integrity Insurance Agency to determine which endorsements are right for you.
Examples of common home insurance endorsements include:
- Scheduled coverage for high-value personal belongings, such as fine jewelry
- Inflation guard to support the cost of rebuilding your home in the future
- Replacement cost coverage for personal belongings
- Home business protection
- Water backup and sewer coverage
- And more
Beyond Home Insurance
Even if you are confident in your home insurance policy, we recommend talking with an agent at our office about your additional liability exposure. Even with a high coverage limit of $300,000, you could still be left with a massive bill if you face a million-dollar lawsuit. An umbrella policy can supplement your primary liability protection once you reach the limits of your coverage, typically providing an additional $1 million or more in liability protection. At an average of just $200 per year or less, this is an affordable way to reinforce your home insurance policy and protect your family against financial ruin. For more information or to request your umbrella insurance quote, contact our office today.