Does Your Homeowners Insurance Provide Adequate Coverage?

Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost

While the definition of “adequate” coverage depends upon a homeowner’s unique circumstances, you should ideally have sufficient insurance to cover the cost to rebuild your home and replace your personal belongings, along with liability insurance should someone accidentally get hurt on your property.

Homeowners Insurance 101

There is no law requiring you to purchase insurance on your home. However, if you secure a mortgage to finance your home, your lender or bank will generally require you to buy and maintain insurance on the property, and in some instances, Condominiums and Cooperatives will require this as well. 

Your policy will define what types of losses are covered in the event of a covered peril, which is an event or risk that is expressly covered by the insurance policy.Homeowners insurance policies typically provide coverage for damage due to perils such as fire, lightning, wind and hail damage, vandalism, theft, acts of God, and explosions. If you live in an area prone to floods or earthquakes, you generally need to seek additional coverage, as these occurrences are often excluded in standard policies.

Generally, greater the coverage you buy, the higher your monthly premiums will be. However, if you don’t have adequate coverage, you may need to pay out of pocket to rebuild your home and replace your personal belongings. You could also face costly liability if someone gets injured on your property.

Different Types of Coverage

A standard homeowners insurance policy contains several different types of coverage. Below is a brief summary:

• Dwelling Coverage: Dwelling coveragehelps pay to rebuild or repair your home and any attached structures, such as a garage, deck, or front porch. It is typically based on the full replacement cost of your home’s structure.Insurers often require you to insure your home for at least 80 percent of its replacement cost to receive full coverage for damages. 
• Personal Property Coverage: Most home insurance policies also include coverage for personal property, such as furniture, appliances, clothing, household goods, and electronics. The personal property limit is usually a percentage of the dwelling coverage limit.
• Loss of Use Coverage: Homeowners policies typically include coverage for the additional living expenses (ALE) that you may incur if your home is damaged and you can’t live in it while it is being repaired. Common examples include costs related to temporary housing, such as apartment rentals or hotel stays.
• Liability Coverage: The liability portion of a homeowners insurance policy covers you against lawsuits for bodily injury or property damage that you or family members or pets cause to other people, along with any court costs incurred and damages awarded. Common liability claims that are often covered include dog bites, intoxicated guests, and falling trees.

Determining If You Have Enough Coverage

Should disaster strike, you want to have enough insurance to fully rebuild your home and replace your personal belongings. Your coverage should also cover your potential liability costs if someone gets hurt on your property.

Dwelling Coverage

To determine if your dwelling coverage is adequate, you can start by multiplying the total square footage of your home by the per-square-foot building costs in your area. However, this is only a rough estimate; it is important to determine if there are factors that will impact your rebuilding costs, such as building materials, house style, custom built or otherwise unique features, and recent improvements.

Many insurers also offer endorsements and/or clauses that can help ensure that your coverage will cover rebuilding. For instance, an inflation guard clause automatically increases the dwelling limit to reflect current construction costs in your area when you renew your insurance. Meanwhile, an extended replacement cost coverage endorsement, which can pay an additional 5 to 25 percent above the limits, can help when construction costs jump following a widespread disaster, such as a hurricane or wildfire.

Personal Property Coverage

Determining whether you have adequate coverage for your personal possessions requires you to conduct an inventory to determine what you want to insure and how much it is worth. You can create your own list or use one of several free mobile apps that allow you to create and store your inventory online.

You also typically have the option to insure your possessions for actual cash value or for replacement cost. While replacement cost coverage is slightly more expensive, it ensures that you can replace older belongings that may cost more to replace than they are currently worth because it does not deduct for depreciation. For instance, your six-year-old refrigerator may only be worth $500, but it could cost $2,000 to buy a new one. Additionally, some types of personal property, such as silverware, fine china, guns, antiques, and jewelry, have limited coverage under your homeowners policy. Accordingly, you may need to obtain additional insurance to protect them in the event of loss.

Liability Coverage

In terms of liability coverage, if you own assets that are worth more than the liability limits in your policy, you should consider an umbrella or excess liability policy. These polices provide coverage over and above your standard home insurance limits and kick in once that coverage is exhausted. Umbrella or excess liability is also a good option because it generally offers broader coverage than standard policies.

Consult With Experienced Legal Counsel

An experienced attorney can help you understand your insurance policy and determine if it’s providing adequate coverage. At Scarinci Hollenbeck, our attorneys counsel clients regarding virtually every type of policy and insured industry. Contact us today to find out how we can help you.