With many different types of homeowners insurance available to Wisconsin residents, it can be difficult to know how much home insurance is enough. At Insurance Innovations, Inc, we help protect you and your home against a wide range of perils and possible losses. In this article, we will explore the various types of coverage available on the most commonly purchased homeowner’s insurance policies – the HO-3 and HO-5.
HO-3 vs. HO-5 – What’s the Difference?
Both the HO-3 (Special Form) and HO-5 (Comprehensive Form) policies are very similar in that they cover your dwelling against all types of perils so long as your policy does not specifically exclude them in writing. The primary difference between the coverage types is that the HO-3 only covers your personal belongings for named perils, whereas the HO-5 covers all perils not excluded in writing.
Types of Coverage
HO-3 and HO-5 homeowners insurance policies are made up of several different components. These basic elements of your policy define the coverage available to your home, belongings, and more, as well as your financial responsibility if you need to file a claim.
Dwelling (Coverage A)
Coverage A on your homeowner’s insurance policy is the section that includes protection for your home’s dwelling. If you have a mortgage, it is likely required, but even if you don’t, why risk having to replace or restore your home with out-of-pocket funds? Whether your kitchen is ruined in a fire or your roof caves in under the weight of a fallen tree, dwelling coverage ensures you have the financial means to rebuild or repair your home if it is damaged or destroyed. Simply select a deductible, which could be as low as $500 or as high as $2,000, and insurance can take care of the rest.
Choosing the right amount of dwelling coverage is essential to protecting your financial interests in the event of a claim. If you have too little coverage, you risk being underfunded during construction. Not to mention, many companies enforce the ‘Co-Insurance Rule,’ which allows for penalization for having too little coverage even in the event of a partial loss. In other words, your personal responsibility for the cost of your loss could increase based on the amount your home is underinsured for.
When determining how much to insure your home for, keep in mind that the coverage you select is of the structure only – not the land. Also, you should take into consideration the cost of cleaning up and hauling away debris. To get an accurate figure, your agent can help you calculate your coverage needs using a ‘Home Cost Estimator’ tool. Once you choose your coverage, we recommend reassessing your needs every few years to account for inflation.
Other Structures (Coverage B)
This section of a homeowners insurance policy extends coverage to other structures on your property besides your primary dwelling; this could be an unattached garage, your fence line, or perhaps even your in-ground pool. Like your home, these structures could be at risk of many different hazards. It helps to know that if a vehicle drives through your fence and into your swimming pool, there is no need to worry. You are covered.
In most cases, the coverage for other structures on your property is automatically generated based on 10 percent of your dwelling coverage, although higher insurance values are available. Also, your deductible will still apply for any claims you file in the future.
Personal Property (Coverage C)
You have probably collected a lot of ‘things’ over the years, from your furniture and clothing to your decorations and electronics. Replacing it could cost tens of thousands of dollars unless you have adequate coverage for your belongings. Insurers typically include coverage at a rate of approximately 50 percent of your Coverage A limits, although some companies default to as much as 80 percent of your coverage.
Should you ever need to file a claim for damage or loss of personal property, insurance will cover you for the actual (depreciated) cash value of your items unless you purchase an endorsement that covers the full replacement value instead. To calculate how much you own, we suggest taking a home inventory and updating it regularly. Several apps are available to help you digitally store your home inventory, which can be helpful for declaring losses in the future.
Loss of Use (Coverage D)
You may be displaced while your home is repaired, which will typically cost you more than your typical living expenses. Coverage D protects your personal income and savings by paying for excess temporary living expenses that exceed your normal costs, such as the cost of renting, feeding your family, or doing your laundry offsite. Coverage is typically more than adequate when it is set at 20 percent of your Coverage A limits.
Personal Liability (Coverage E)
If you are at-fault for an accident, you can be held financially responsible for the damages. Personal liability is an important part of your home insurance policy that protects you against a third-party’s accidental injury or property loss. With the exception of damages from certain incidents, such as boat and car accidents, the personal liability coverage in your home insurance will generally follow you and the members of your household anywhere you go.
Examples of common personal liability claims include:
- Dog bites and other pet-related injuries
- Accidents involving bicycles and/or pedestrians
- Slip-and-fall accidents on the insured’s property
- Accidental damages to hotel rooms
- And more
How Much Coverage Do You Need?
Choosing the right liability coverage amount is essential in protecting your income and assets against litigation. If your limits come up short of your actual liability, how will you pay for the excess – especially if you are left with tens or even hundreds of thousands of dollars in additional damages? By purchasing the right coverage now, you may spare your family of a major loss in the future. Many homeowners choose limits between $100,000 and $300,000, although we recommend talking with an agent here at Insurance Innovations, Inc to determine how much coverage is right for you.
Medical Payments (Coverage F)
Coverage F provides payment for medical expenses due to accidental injury on your property. Coverage is typically limited between $1,000 and $5,000, but there is no need for the victim to prove negligence on behalf of the homeowner in order to receive payment. Instead, the medical payments section of a typical home insurance policy provides coverage for accidental third-party injury regardless of fault.
It is important to note that medical payments coverage is not the same as personal liability coverage, nor does utilizing this benefit absolve you of any financial liability you may have for an accident. However, this coverage may provide enough compensation to prevent a lawsuit for minor injuries.
Insurance companies use endorsements to meet the more specific needs of homeowners that are not covered by standard home insurance policies. You can purchase an endorsement to expand your coverage to include more loss-related events, as well as to increase the amount of compensation you receive for a particular loss. For example, a water backup and sewer endorsement can protect your home against extensive water damages that are not included in a standard policy. Likewise, adding a replacement cost coverage endorsement will increase the compensation you receive for damaged personal belongings from the depreciated, actual cash value to the full cost of replacement.
Examples of other home insurance endorsements include:
- Scheduled coverage for expensive belongings
- Inflation guard to insure against the rising cost of rebuilding your home
- Home business endorsement
- And more
Beyond Home Insurance
Sometimes, homeowners can benefit from purchasing an umbrella insurance policy that works hand-in-hand with home insurance to provide maximum personal liability protection. This is especially beneficial for homeowners with significant financial assets or the ability to earn income in the future.
Umbrella insurance typically includes a minimum of $1 million in secondary liability protection, which pays for damages that exceed the limits of your home insurance policy. If you have a $300,000 personal liability limit on your home insurance and are sued for $1 million, your umbrella insurance would generally pay the remaining $700,000, minimizing your financial losses. Without this extra coverage, your family could lose everything you have worked hard to acquire and potentially face financial ruin.
Umbrella insurance can cost the average homeowner as little as $200 per year. Contact our team today to find out more about this important coverage and to request your free quote.