In my last column, I explained the reason for making sure your dwelling is adequately insured. I also explained the different forms of home policies and the effects of endorsements.
Today I will explain the coverages and deductibles available in a home insurance policy. I will assume you chose a HO-5 policy, because it has the broadest coverages. I also will explain the importance of being a named insured.
Liability insurance in a home insurance policy is designed to protect you and your family if another person were to be injured or sustain property damage on your property. Like all liability policies, it is designed to protect your assets.
What most people don’t know is it provides protection away from your home. Did you ever wonder what happens if you hit someone with a golf ball? Most policies start liability coverage at $100,000, but increasing to $300,000 or $500,000 may be more adequate to protect your assets and may not cost that much.
Medical payments to others are included in your home policy. This coverage is designed to make you a good neighbor. If someone is hurt on your property, his or her medical bills will be paid up to a limit regardless of cause. If this limit is not adequate to cover medical bills, your liability coverage steps in.
Damage to property of others, like medical payments, is designed to quickly settle a claim without determining liability. I have paid for broken glassware, screen doors and even a toilet.
Contents coverage protects all of your personal items. The amount of coverage is usually 75% of the dwelling coverage. If your dwelling is insured for $250,000, then the contents are insured for $187,500. That seems like a large figure for a couple starting out, but 20 years of accumulating stuff may require you to adjust this number.
There also are limitations on items such as jewelry, guns, currency and silverware. If you are concerned about items of value, ask your agent to explain limits in the policy. There are endorsements that can increase limits of coverage on certain items, and there are policies designed to provide coverage for items of value. Like liability coverage, contents coverage protects your property away from your home.
Contents coverage also has limits on motorized vehicles. Whether it is an all-terrain vehicle, a dirt bike or boat, do not assume your home policy will cover them.
If you have a she-shed or a man-cave in the back yard, dwelling extension coverage protects it. An Ho-5 policy extends coverage to 10% of the dwelling amount, so your $250,000 home has $25,000 of coverage for all structures not attached to it. Review your coverage with your agent.
What if your house catches on fire and you can’t live in it? Loss of use provides additional living expenses in most policies for up to two years. This coverage pays for any additional cost you may incur while having to live elsewhere while your home is being repaired or replaced.
As with car insurance, you can choose the amount of loss you are willing assume. This is called a deductible and applies to a dwelling or contents loss. Deductibles originally were fixed dollar amounts of $250, $500, etc. Over time, inflation increased the value of our homes, but deductibles did not increase proportionately.
Insurance companies add deductibles based on a percentage of the dwelling amount. Half of 1 percent up to 5 percent are common now. Percentage deductibles are more reflective of the effects of inflation and help keep premiums lower. The higher the deductible, the lower your premium.
Home insurance policies require an owner to reside in the property. Insurance companies assume the named insured owns and resides there. If you own a single-family home, town home or condominium, and do not live there, you should not have a home insurance policy. Talk to your agent make sure you have the correct policy for your situation.
Bob Hollick is a State Farm Insurance agent based in Washington.
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