I really enjoy my home, and I sometimes find myself being a bit paranoid about it. Is my dirty dryer vent going to start a fire? Will I come back from vacation to a flooded basement? Do I have enough home insurance coverage to protect us?
I encourage you to have a copy of your home insurance policy in front of you while you read this blog. I will discuss key words that you should be able to find in your own policy.
Here are some tips on how to know if your home insurance policy has enough coverage:
1. Do I have enough Dwelling Protection?
Dwelling Protection is the reason we all buy home insurance policies. It pays you the agreed upon amount for damage to your home’s structure from a covered risk, like fire or theft. This would include attached structures like a deck or garage.
Have an appraiser evaluate your home so you know how much it will cost to replace. Your insurance provider will probably require the appraisal.
MOST policies cover fire, lightning, wind, hail, explosions, vandalism, theft, falling objects, damage from aircraft, and damage from motor vehicles. Note that flooding is generally NOT covered.
If you made home improvements or live in an area with increasing property values or constructions costs, consider increasing your coverage.
Look at your home insurance policy at least once a year to ensure it’s up to date. Do not just buy the policy and forget about it!
2. What does “Other Structures Protection” even mean?
Other Structures Protection generally covers stand-alone structures on your property. This might include a shed or fence. Generally, your insurance company just figures your “Other Structures” are worth 10% of your dwelling coverage. So, if your home is covered for $300,000, your insurance company probably made your Other Structures Protection $30,000.
This is probably sufficient. However, if you have numerous or valuable structures on your property, you may want to contact your insurance provider to have this coverage increased. Note: this would mean a higher premium.
3. Do I have enough Personal Property Protection?
Personal Property Protection covers your possessions such as furniture, clothing, and dishes. Insurance providers generally pick an amount of coverage equal to 40-70% of your dwelling coverage. On the low end, your $300,000 home insurance policy might have $120,000 of property protection.
Take an inventory of your possessions. Would that cover everything you own? If not, you might want to consider paying for more coverage.
Also, check for limitations. Policies often place limits on how much they will pay for damaged antiques, jewelry, or firearms. If you want those items fully covered, you might need to purchase a rider, which would let you add benefits to your policy.
4. What’s the difference between Replacement Cost and Actual Cash Value?
This. Is. Important.
Replacement Cost Coverage will replace the full cost of your damaged items up to the policy limit. If your 10-year-old kitchen appliances were all burned, insurance would cover the cost of buying new, comparable appliances.
Cash Value Coverage is cheaper to buy… but you might regret it later. If a possession is damaged, they will pay for the replacement MINUS depreciation. So, if you bought your couch for $2,000 but it’s now a bit worn down and only worth $500, the insurance company will only pay you $500.
5. What does Additional Living Expense cover?
When Will and I moved last year, we lived in an extended-stay hotel for a month while waiting for our home closing. I threw myself pity parties because I was tired of living in a cramped space and using hotel laundromats. However, I was humbled when I met families who had been living there for MONTHS.
These families were living in the hotel with their small children because their homes had burned. I could feel the devastation. We all know that hotel fees are expensive too! Thankfully, most home insurance policies have Additional Living Expense coverage which generally reimburses families for the cost of housing and meals while they are forced outside their home.
Many policies have daily payout limits, so speak to your insurance provider if you have more questions!
6. Do I have enough Family Liability Protection?
Every home insurance policy should have some level of liability protection. If someone slips on your sidewalk and decides to sue, you could end up paying for some expensive hospital bills.
Family Liability Protection generally covers $100,000 – $300,000. Anything owed above that is YOUR responsibility. Thankfully, you can buy more coverage for a reasonable price. Read The Need-to-Knows About Umbrella Liability Insurance to learn more.
Insurance policies have a way of appearing long, boring, and complicated. You might think that every policy is the same, and you don’t have to read or understand every item.
That is simply not true!
The time and money you put into making your house a home is invaluable. It’s important that your home has enough protection. And don’t worry, with a little bit of knowledge, you will realize that the policies aren’t so complicated after all. 😊