Homeowners Insurance – What You Should Know

Almost everyone who owns a home carries homeowners insurance. But when was the last time you picked up your policy and read the fine print? How well do you know your coverages and their limits?

Did you know that your standard homeowners policy does not cover the average replacement cost of a diamond engagement ring? It doesn’t even come close!

Over the next few minutes we’ll examine how your homeowners coverage works and we’ll offer a few money saving tips as well.

I will use my personal homeowners policy as an example for this discussion. I have a high quality policy with one of the largest insurers in the U.S.

First let’s discuss what is standard coverage for most homeowners policies.

Your “dwelling protection” is the coverage you have that pertains to the main structure of your house. This does not carry over to any detached structures such as detached garages, sheds or out buildings on your property.

Your “other structures protection” does cover detached structures on your property and is usually listed at 10% of your dwelling protection, unless you manually increase it.

Your “personal property protection” is your coverage that applies to your personal property inside the home. This should also extend coverage to your personal items that you have in your automobile, such as a laptop computer.

It is very important that this coverage is at replacement cost not actual cash value!

If your policy is actual cash value, you will receive the depreciated value for your items. In other words, you would receive $5 for your jeans because that is the going rate for used jeans. The standard personal property coverage is 75% of your dwelling protection.

If your home were to burn down and you incurred higher than normal expenses to live in a hotel, your “additional living expense” coverage would reimburse your losses. This amount is either a stated value or will apply for a period of time, such as 12 months following a loss.

One of the most overlooked coverages on your policy is your “family liability protection.” This coverage not only protects you from someone becoming injured in your home, but also covers you in case you cause certain damage to other people outside of your residence premises.

For instance, a golfer who slices a drive and breaks a car windshield would have coverage for the windshield under his/her homeowners liability coverage.

Lastly, most policies offer “guest medical protection.” This will pay for out-of-pocket medical expenses incurred by guests who are injured on your property. This coverage is usually around 5,000.

You need to be aware of a few major coverage gaps that your standard homeowners policy does not cover. Below is a list of possible concerns and solutions on how to address them.

Problem:
My policy offers jewelery coverage of $5,000. But when examined more closely this is total coverage, but the per item limit is $1,000. This means that if your wife’s diamond engagement ring were to be stolen or destroyed in a loss, you would only receive $1,000.

Solution:
I scheduled my wife’s ring separately on our policy using the jewelry appraisal. By the way, most jewelry appraisals are inflated significantly! Our policy will only pay us what it costs to replace the ring (of like kind and quality), so we covered the ring for what we knew we could replace it for rather than the full appraised value.

Problem:
Our policy excludes coverage for earth movement, which includes both sink holes and earthquakes.

Solution:
I purchased earthquake coverage which covers damage caused by earthquakes and other earth movement.

Be aware most major carriers are considering whether to offer this coverage to insurers in the future. Allstate Insurance is non-renewing their earthquake coverage at the policy anniversary. Other major carries will likely soon follow this move.

Problem:
Keeping old stock certificates and savings bonds in your home. My homeowners coverage is limited to $1,000 in this area.

Solution:
Most stock and other securities related investments are held electronically. She can turn the physical certificates in and they will be held electronically at her brokerage house.

Money Saving Tips:
I recommend having a higher deductible to keep your premiums as low as possible. The $1,000 deductible is one you should look into if you have not already done so. You have to be able to save $150 or more per year just by increasing from a $500 to $1000 deductible.

This means that if you can average at least 3-1/2 years between claims, you will come out ahead with the higher deductible.

Also, you may not want to file a claim that is less than $1,000, even if you have a $5,000 deductible because the insurance company will likely raise your rates for the next several years making it cost-prohibitive to actually file small claims.

Know the determining factors for your carrier’s rates. Some companies’ rates are highly driven by your credit, while other companies don’t even factor in your credit.

For those of you who have excellent credit, you may be able to save money by choosing a carrier that considers this rating factor. For those of you who have poor credit, you may be better served using a company that does not factor credit into your rate.

Bundle your coverages together with the same carrier if possible. Most insurance companies offer significant discounts if you insure both your home and cars with the same company.

If you have an alarm system in your home, make sure you are receiving a protective device discount. This is often available even if the alarm is not hooked up to a monitoring company.

The most important tip is to know your policy inside and out, because in many cases it’s protecting one of your largest assets!