The questions come up, how much should I insure my home for and will I get that much if it burns down? The answer is that it depends on which insurance contract you have and if your home is insured to value. Most homeowner insurance today is written on an HO-3 contract, which is a named peril and an open peril policy. It covers those perils up to the value listed on the policy under coverage A for your dwelling.
An HO-5 policy is a homeowner policy that covers all risks under coverages A and B except those that are specifically excluded.
Coverage for unattached outbuildings or garages is typically covered for 10 percent of the dwelling listed in coverage A. Personal property or content coverage is 75 percent of coverage A. Loss of use, or the expense covered for temporary living expenses while your home is repaired is 30 percent of coverage A or actual loss incurred. Liability insurance is written in limits of $100,000 to $1 million, and medical payments can start at $1,000 and go up to $10,000 or higher. Those are standard coverages.
Coverage of additional things such as fungi, dry rot or bacteria coverage, identity theft coverage, sewer backup coverage and earthquake can be written as well. Whether you need coverage of these things is up to you.
You can also buy an endorsement to extend your dwelling coverage 25 percent-50 percent above the value listed on the policy as well as upgrading contents coverage to replacement cost rather than actual cash value. The insurance company will only pay to replace your contents at their depreciated cost under the standard ACV policy assuming the caused of loss was a named peril.
Items such as jewelry, firearms and fine art that do not depreciate should be listed under a personal articles floater that lists the agreed upon amount to be reimbursed in the event of a covered loss.
Typical exclusions of an HO-5 policy are flood, ordinance or law, earth movement, neglect, nuclear hazard, intentional loss and governmental action. All other perils are covered. Coverage is provided on a replacement cost basis as long as the dwelling is insured to 80 percent or more of the full replacement cost of the building directly after the loss subject to the deductible. If you have an HO-5 policy or an HO-3 policy, you need to make sure your coverage A is 80 percent to value or more.
Verify with your company or agent that a current home-cost estimator or insurance-to-value evaluation has been done to be sure you are properly insured.
While you want to keep your insurance premiums as low as possible, do not make the mistake of not insuring your home to at least 80 percent of the replacement cost value. Remember the cost to rebuild your home is not the same as current market value. If your home is not insured to 80 percent of full replacement cost your company will pay no more than the amount listed under coverage A, dwelling. In the event of partial damage, settlement will be on an actual cash value basis or 80 percent of the damaged home on a replacement cost basis after deductible is applied, without deduction for depreciation.
I know that this is not easy to digest. Everyone wants to pay the lowest premium possible, and you certainly do not want to over insure your home, but there is too much at stake to knowingly under insure your home. Also, do not let anyone tell you that a standard HO-3 policy provides the same coverage as an HO-5.
Call your agent or insurance company to make sure you are properly insured, especially if you are like many people who get the renewal, assume everything is okay and file the policy away without looking at it. Be proactive on your most expensive asset!
Dave Pushman is the former regional vice president of Geico in Macon and is now an independent insurance agent with Tidwell and Hilburn Insurance. He can be reached at firstname.lastname@example.org.