The Ins and Outs of Homeowners Insurance II: Preparation
Written by Kristina Lee
Step 2: Decide on the level of coverage that you want.
This level is how thorough you want your coverage to be. But remember, more thorough equates to higher premiums. The following is an example from Allied Insurance:
Guaranteed replacement cost coverage with full building code upgrade - This pays the replacement or repair costs without regard to policy limits. It also includes any additional costs to replace or repair the dwelling to comply with current building standards.
Guaranteed replacement cost coverage with limited or no building code upgrade - This will pay for the full amount to replace or repair the dwelling regardless of policy limits, but does not include any costs to bring the dwelling up to current building standards or codes.
Limited replacement cost coverage with additional percentage - This pays to repair or replace the dwelling up to the limit specified in the policy. It will also pay for a percentage of anything above that limit.
Limited replacement cost coverage with no additional percentage - This pays to repair or replace the dwelling up to the limit specified in the policy, and only up to that limit.
Actual cash value coverage - This policy would pay the fair market value of the destroyed or damaged dwelling (minus the value of the land), OR the cost to repair or rebuild the dwelling, up to the specified policy limit.
Building code upgrade - An addition to a limited policy, this pays for additional costs to repairing or replacing a dwelling to bring the building up to current building standards or codes.
Step 3: Know your coverage needs and wants before going to see an insurance agent.
This will help you decide between policies and avoid getting more coverage than you actually need, thereby saving you money. Things that are typically covered under your policy include disasters such as fire (not arson), theft, water damage from failed plumbing or appliances, smoke, and vandalism. Others are covered, but differ from policy to policy. Here is an example of a standard Homeowners insurance policy:
Coverage A: Dwelling - this covers the value of the building itself, ie the framework of the house, attached structures, and built in appliances. The amount of coverage is based on how much it would cost in today's economy to rebuild the house, as it was.
Coverage B: Other Structures - this covers other structures in the dwelling that are not part of the framework itself, such as the shed, driveway, sidewalk, fence, retaining wall, deck, or guest house. This is typically specified at 10-20% of the Coverage A: Dwelling amount.
Coverage C: Personal Property - this covers the contents of the dwelling, such as the dining room table, sofa, and tv. This is typically specified at 50-70% of the Coverage A: Dwelling amount.
Coverage D: Loss of Use - this covers expenses one might incur should the dwelling be unusable for a period of time following a disaster, such as rental expenses for an alternate place to live while a burnt down house is being rebuilt. The amount covered is determined by the cost for the shortest reasonable time, given what the actual losses sustained were.
Coverage E: Personal Liability - this covers what you as a homeowner would be responsible or liable for should something (excluding your dwelling) be damaged on your property.
Coverage F: Medical Pay for Each Person - this covers your liability as a homeowner if someone were to be injured on your property, such as the postal worker who tripped on a broken step and fractured his ankle.
Limited replacement cost coverage with additional percentage - This pays to repair or replace the dwelling up to the limit specified in the policy. It will also pay for a percentage of anything above that limit.