Basic Coverages Available

Whether you own or rent, there are different packages of home insurance offered to protect your home and belongings.

Each package protects against a specified number of perils. Perils are events that cause damage to property. Three examples are fire, windstorm and theft. In addition to coverage for named perils, each package policy usually contains four additional types of coverage: property damage, additional living expenses, personal liability and medical payments. Home insurance policies apply to most owner occupied single-family homes, and are modified slightly for apartments and condominiums.

Property damage coverage helps pay for damage to your home and personal property. Other structures such as tool sheds, detached garages, houses and their contents are also covered. You should check with your producer or your insurance company to determine if the amount of coverage on other structures is sufficient.

Personal property is the contents of your home and other personal belongings owned by you or family members who live with you.

Home insurance policies may provide limited coverage for small boats; however, most home insurance policies do not cover motorized vehicles unless they are unlicensed and used only at your home. Your insurance producer or your insurance company can help you find appropriate coverage for your car, boat, snowmobile or other recreational equipment.

Some forms of personal property, such as, silverware, computers, guns, money, expensive antiques and jewelry, have limited coverage under your homeowner's policy and may need additional insurance. This coverage can be added to your policy as an endorsement.

You can choose to insure your home and belongings for either replacement cost or actual cash value. These terms are explained below.

Replacement cost is the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality, without deducting for depreciation.

Depreciation is the decrease in home or property value since the time it was built or purchased because of age or wear and tear.

Many insurers require homeowners to insure their homes for at least 80 percent of the replacement cost. If the homeowner fails to insure for at least 80 percent of the replacement cost, a penalty is applied to partial losses. For example, if it would cost $50,000 to replace your home and it is insured for $40,000 (80 % of its replacement value), and a fire causes $25,000 worth of damage, then your insurance company will pay the full $25,000.

On the other hand, if your $50,000 home is insured for $30,000 (which is less than 80 % of its replacement value), and you suffer a $25,000 loss, your company would pay for only part of the loss. You would have to pay the balance out of pocket. Your company would pay for damages based upon the following formula:

Amount of Insurance Carried $30,000 = 3/4 or 75%
Amount of Insurance Necessary $40,000
to cover assets (80% of $50,000)

Using these figures, your company will only pay for 75 % of your $25,000 loss. Hence, 3/4 x $25,000 loss = $18,750 paid by the company. You would have to pay the balance: $6,250.

As you can see, insuring your home for at least 80 % of its replacement cost is very important. Check with your producer or insurance company to see what is required. You may wish to insure at 100 % of replacement cost so you will have sufficient coverage in the event of a total loss.

Actual cash value is the amount it would take to repair or replace damage to your home after depreciation. For example, if your roof has a 20-year warranty and is 17 years old, there would be a depreciation for the age and condition of the roof.

Most standard home insurance policies cover the contents of your home (i.e., personal belongings) on an actual cash value basis. Many insurers offer an option for you to insure your belongings at replacement cost. The premium will be slightly higher for this coverage; however, you may want to consider the option.

Whether your home is insured for replacement value or actual cash value, it is important to keep track of its value. For instance, the addition of a room, new insulation and yearly inflation all increase the replacement cost of your home, while the actual cash value of the home may decrease over time.

Check with your producer or insurance company at least once a year to make sure your policy provides adequate coverage.

Most home insurance policies provide additional living expenses that will pay some expenses if your home is damaged by an insured event to the extent that you cannot live there while repairs are being made, or if you are denied access to your home by government order. These expenses could include limited motel, restaurant and warehouse storage.

This coverage protects you against a claim or lawsuit resulting from (non-auto and non-business) bodily injury or property damage to others caused by your negligence. This coverage applies to you and all family members who live with you. You should check with your producer or insurance company to determine if the amount of personal liability coverage is sufficient.

Regardless of who is at fault, this coverage pays medical expenses for persons accidentally injured on your property by a member of your family or by your pets. Medical payments do not apply to your injuries or those of family members living with you or to activities involving your at-home business. You should check with your producer or insurance company to determine if the amount of medical payments coverage is sufficient.