Home and Property Insurance: Coverage, Exclusions, Discounts, and Claim Tips
Learn everything about homeowners, renters, and property insurance. Understand coverage, exclusions, replacement cost vs. cash value, and how to save money on premiums.
Home and Property Insurance - Safeguarding Your Largest Investment
For the majority of individuals their home is their one largest asset and investment. Whether renting an apartment or owning a house, insuring that place and the things within it should be paramount. That’s where property insurance comes in.
Homeowners Insurance - What It Actually Covers
Homeowners insurance is really several different kinds of coverage packaged into one. Let’s examine the key parts:
Dwelling Coverage insures the building of your home itself. If your home is destroyed by fire, wind hail or other covered losses this coverage pays to rebuild or repair it. This should be enough to rebuild your home not only the market value.
Other Structures Coverage covers stand-alone structures such as garages, sheds fences and gazebos. It is usually 10% of your dwelling coverage but it can be raised if necessary.
Personal Property Coverage insures your personal property - furniture, clothing electronics, appliances everything within your home. Most policies normally insure 50-70% of your dwelling coverage value. So if your home is insured at $300,000 you may have $150,000-$210,000 in personal property coverage.
Liability Protection covers you if someone is injured on your property or if you damage someone else’s property. This includes legal defense costs if you’re sued. Standard policies usually include $100,000-$300,000 in liability coverage but you can and should consider higher limits.
Medical Payments Coverage covers medical bills if a guest is hurt on your premises without regard to fault. This is typically $1,000-$5,000 and can prevent lawsuits over minor damages.
Additional Living Expenses (ALE) or Loss of Use coverage covers hotel expenses, meals at restaurants and other expenses in case your house becomes unlivable because of a covered loss. This generally pays for 12-24 months or up to 20-30% of your dwelling coverage.
What Homeowners Insurance Doesn’t Cover
This is where people get caught off guard. Regular homeowners policies don’t cover everything. There are significant exclusions:
Floods are usually not covered under standard policies. You must have distinct flood insurance under the National Flood Insurance Program or private insurance companies. Even if you do not reside in a high-risk flood area, you might want to get flood insurance. Approximately 25% of flood claims originate in moderate-to-low risk zones.
Earthquakes need distinct earthquake insurance in the majority of states. If you are in California or other seismically active regions this is something to consider.
Maintenance Issues are not included because insurance covers unexpected sudden events not gradual wear and tear. That dripping roof you’ve been putting off? If it results in water damage your claim could be denied.
Mold is generally excluded or greatly restricted unless it is caused by a covered peril. Water damage that compromises leading to mold may be covered but existing mold issues are not.
Sewer Backup is not typically covered but you can purchase it as an endorsement for relatively inexpensive cost.
Home Business equipment and liability are generally not covered. If you have a business at home you must have additional business insurance.
High-Value Items such as jewelry, art pieces and high-cost electronics are included but only within specific limits (usually $1,000-$2,000 per category). You’ll have to arrange these items individually or purchase a floater policy for the full amount.
Renters Insurance - The Coverage Nobody Thinks They Need
If you’re renting, you may think insurance isn’t your concern. Think again! Your landlord’s insurance insures the building itself, not your stuff or your liability. That’s where renters insurance is useful.
Renters insurance is very cheap - typically $15-$30 per month - and offers:
- Coverage for your personal property
- Protection from liability if someone gets hurt in your apartment
- Extra living expenses in case your apartment is no longer habitable
- Payment for medical bills for guest injuries
I don’t even know how many individuals I have known who lost everything in apartment fires or had their belongings stolen and did not have coverage. Don’t become that individual. Renters insurance is one of the greatest bargains on insurance.
How Much Coverage You Really Need
This is where most individuals make their mistake. Your coverage needs to be replacement cost and not market value.
For home coverage figure out how much it would take to rebuild your house from scratch. This is materials labor and prevailing building codes. Rebuild costs in most regions are greater than market value particularly for homes that are older.
For personal property go through your home and in your mind total up what it would take to replace everything. Most people grossly underestimate this. That $50,000 of personal property coverage may sound excessive until you figure out your furniture, appliances, clothing electronics and everything else really does total up to $100,000 or more.
Take a home inventory with pictures or video. Walk through each room and record what you have. Save this someplace safe away from home such as cloud storage. You’ll thank yourself if you ever have to make a claim.
For liability protection consider your income and assets. If you have valuable assets you might lose in a lawsuit consider increasing your liability limits or purchasing an umbrella policy. I personally believe that anyone should carry at least $300,000 of liability coverage and $500,000 or $1 million is even more desirable.
Replacement Cost vs. Actual Cash Value
This is an important distinction that catches people off guard.
Actual Cash Value (ACV) pays how much your property was worth at the loss consideration, that is, depreciation. Therefore, your stolen 10-year-old television could be paid $100 by insurance even though it was sold for $800 new.
Replacement Cost pays to replace things with brand new ones of comparable kind and quality. The same TV would be replaced with a new identical model.
Replacement cost coverage is more expensive but it’s nearly always a good idea. Without it you might be seriously underpaid for your loss. Try to replace everything you own at thrift store prices.
Common Homeowners Discounts
Similar to auto insurance there are a number of ways to save on your home insurance:
Bundle Policies and purchase your home and auto insurance from the same company for typically 15-25% off.
Security Systems such as burglar alarms, monitored fire alarms, and security cameras can qualify for 5-20% discounts.
Home Improvements such as new roofs, upgraded electrical systems and impact-resistant elements can qualify for discounts.
Claims-Free Discount rewards you for your good behavior of not making claims. Each claim-free year can add more discounts.
A Higher Deductibles lowers premium like auto insurance. Raising your deductible from $500 to $1,000 or $2,500 saves 10-25%.
Gated Community or neighborhood watch membership occasionally is eligible for discounts.
Loyalty Discounts are given to long-time customers although it’s still a good idea to shop around every so often because these do not necessarily counter better rates somewhere else.
Submitting a Home Insurance Claim
When tragedy strikes having an idea how to make a claim can make a big difference in the result.
Document everything first. Document all damage via photos and videos prior to beginning repairs. Create a thorough list of damaged or destroyed items with descriptions values and receipts if possible.
Notify your insurance company immediately and report the claim. They will send an adjuster who will visit to inspect the damage. Be on hand during the inspection to provide information and indicate all damage.
Prevent further damage by doing reasonable temporary repairs such as tarping a broken roof or boarding over shattered windows. Keep all receipts since these expenses are typically refundable.
Don’t dispose of anything until the adjuster has viewed it unless it is a health risk.
Document all correspondence with your insurance company including names dates and what was said. Keep a record of all the expenses incurred on the claim.
Be persistent but patient. Claims may take weeks particularly after a large loss when the adjusters are swamped. Keep on top of your claim and check up regularly.
Use a public adjuster for large claims. They represent you, not the insurance company, and can assist in getting you a reasonable settlement. They charge 5-15% of the claim but could get you much more money.
Special Insurance for Special Properties
Regular homeowners insurance covers standard single-family homes. If your property is unique you may require special insurance:
Condo Insurance (HO-6 policy) insures the interior personal property and liability of your unit. The master policy of the condo association insures the building and common areas.
Mobile Home Insurance is tailor-made for manufactured homes which present risks different from standard homes.
Vacant Home Insurance is required if your home will be unoccupied for long periods of time because most policies do not cover homes that are unoccupied over 30-60 days.
Luxury Home Insurance for expensive homes offers greater coverage limits and can include replacement cost guarantees and high-end feature coverage.
Historic Home Insurance covers the special challenges of insuring older homes such as increased rebuild costs using materials found from the same era.
Insuring your home and possessions with sufficient protection isn’t only wise - it’s necessary. The comparatively minimal investment in the right coverage is insignificant when compared to the financial ruin of being inadequately covered during a crisis. Check over your policy once a year, adjust coverage as necessary and be certain you know what is and isn’t included.