Replacement Cost vs. Actual Cash Value: Replacement Cost coverage will pay you the amount needed to replace or repair a damaged home or contents. Actual cash value will pay you a depreciated market value, which may not be enough to replace the damaged item. Most of the time, there is a minor price difference between replacement cost coverage and actual cash value coverage. When shopping for insurance, it is important to ask your agent if replacement cost coverage applies to both your home and contents.
Guaranteed Replacement Cost Coverage: This takes the replacement cost coverage one step further. If your policy includes guaranteed replacement cost coverage, your insurance company agrees to pay whatever amount necessary to replace your home, even if it exceeds the amount of coverage listed on the policy. This will prevent you from finding yourself in the unfortunate position of being underinsured in the event of a total loss.
Liability Coverage: Most home insurance policies will include some liability coverage. Most home insurance policies provide a minimum of $100,000 liability. This coverage applies in the event you are sued for bodily injury or property damage of other people’s property. In order for an insurance company to pay out on a liability claim, you must be found to be legally liable for damages. Medical payments coverage is usually included in a dwelling policy and offers a smaller amount of coverage ($1,000 – $5,000) to cover medical bills resulting from injuries that occur on your property. Unlike liability coverage, you do not need to be legally liable for a medical payment claim to be paid.
Loss of Use: This coverage provides you with money for living expenses if you cannot live in your home. Loss of use will cover the cost of living accommodations, such as a hotel or rental and other living expenses while your home is being repaired or rebuilt.
Jewelry, Art, Antiques, Computers & Electronics, Firearms, and Other High Value Items: Most homeowners policies have a per item cap and a maximum per policy limit for certain items like jewelry, silverware, furs, or art work. If an item is not automatically covered or coverage is very restricted, it is a good idea to specifically schedule that item on your policy. This will guarantee that you have enough coverage for the expensive items you own. Be sure to tell your agent about any of these items you may own.
Water Backup and Sump Overflow: Not all policies will cover you if you have a sewer backup. On many policies this is considered optional.
Animal, Trampoline, & Water Slide Liability: Many home insurers may decline to write your homeowners insurance if you have a certain breed of dog, a dog with a bite history, a trampoline, or a water slide. Make sure you tell your agent if any of these apply to you. Most insurance companies actually exclude liability coverage altogether in these circumstances. Some carriers will allow you to endorse dog liability onto your policy.
Loss Assessment Coverage: If you live in a condo or a neighborhood with an association, this is a very important coverage. Homeowners associations can bill homeowners for losses that may occur that are the responsibility of the association. Loss Assessment Coverage will pay your portion, up to your coverage limit, of these losses in certain instances.
Dirt Bikes, ATV’s, Golf Carts, Boats, Etc: Your homeowners insurance will not automatically cover these items so it is a good idea to inquire about covering these vehicles if you own any. Many companies offer endorsements to add a golf cart to your policy.
Home Business Coverage: Homeowners insurance may not automatically cover business property located at your residence. Some carriers can add coverage for business property such as computers and furniture as well as liability coverage for home based businesses.
Flood Insurance: A basic homeowner’s policy won’t cover your flood damage – you need specific flood insurance. In most cases, you can only get this as a special policy backed by the federal government, with cooperation from local communities and private insurance companies who actually write the policies. The government agency responsible for this is the National Flood Insurance Program (NFIP), which is under the administration of the Federal Emergency Management Agency (FEMA).
Although flood insurance is relatively inexpensive, most Americans tend to avoid purchasing protection. Only about one-quarter of the homes in the most vulnerable areas (hazard flood zones) are insured against flood loss, according to the Federal Insurance Administration (FIA). In these areas, flooding is 26 times more likely to occur than a fire during the course of a typical 30-year mortgage. It’s critical to have coverage, especially if you live in a hazard flood zone. Keep in mind that many insurance policies will have a 30-day waiting period before it will become effective. So don’t wait until just before hurricane season to purchase! You should carry this insurance year round.
Umbrella Liability Coverage: Most home insurance policies – whether for the home, condo or apartment – will have a liability component. However, many people now carry umbrella liability policies as well in order to give them and their families more protection. In today’s litigious environment many suits are for large amounts. The liability in your home insurance policy is not likely to be enough.
Your umbrella liability insurance kicks in once you have exhausted the coverage through your home insurance. It is relatively inexpensive (between $15 and $20 per month) to have an additional $1 million personal liability. Most liability insurance companies will want you to have existing coverage through your home policy of at least $300,000 and coverage through your auto insurance of $250,000. Then, you purchase your umbrella liability insurance above that.