Understanding the various home and property insurance policies available will enable homeowners to select one that meets their specific needs and protects against all perils.
One key distinction is between replacement cost coverage and actual cash value coverage; with replacement cost being offered as standard in home policies while actual cash value does not always provide enough coverage to replace an entire home in case it’s destroyed.
Dwelling Coverage
Dwelling coverage (also referred to as Coverage A) is one of six standard homeowners insurance policy coverages. It provides protection for the physical structure and permanently installed fixtures and appliances of your home from covered perils, such as fire. Your replacement cost should be determined based on market values for comparable properties plus any upgrades made to your property over time. How much dwelling coverage you require depends on its market value based on age and location as well as any extra features or upgrades made during its ownership.
Dwelling coverage protects against certain perils, but not floods or earthquakes without additional policies. Dwelling insurance also doesn’t cover detached garages, barns, sheds and other structures on your property that you may want protected under other structures coverage on your home policy.
Reviewing your dwelling coverage limit annually, particularly after making renovations or additions to your home is an excellent practice. Rising construction costs may impact how much it would cost to rebuild it in an event of disaster; additionally, if your policy includes ordinance or law coverage it pays to ensure that any covered losses bring your house up-to-code as soon as possible – otherwise a difference could arise between rebuilding costs and current building code requirements requiring payment for these damages.
Personal Property Coverage
Homeowners policies provide personal property coverage that encompasses items found inside your home such as furniture, electronics, clothing, appliances and collectibles – typically 50-70% of dwelling coverage. Homeowners insurance also typically covers other structures on your property such as sheds detached garages fences as well as additional living expenses that would arise should your house become damaged during repair or reconstruction – such as hotel fees restaurant meals and any additional living costs that would occur that exceed what is normally budgeted.
Replacement cost insurance policies typically reimburse their policyholders for the amount it would cost to reconstruct structures on their properties with materials of similar kind and quality without taking depreciation into account. While replacement cost coverage tends to be more costly than actual cash value coverage, most companies require them to insure at least 80% or even 100% of replacement cost value coverage on their policies.
Homeowner’s insurance is sold in an extremely competitive market and insurers may choose not to approve your application for coverage. Furthermore, it may be illegal in certain states for an insurer to discriminate based on factors like race, national origin, religion, sex or age – although in such instances any discriminatory actions by an insurer against any applicant for coverage could violate state law.
Additional Living Expenses Coverage
ALE coverage refers to a component of your homeowners, renters or condo policy that covers extra costs associated with being forced from your home due to an insured peril, such as hotel bills, restaurant meals (other than fancy ones) and rental housing while your damaged home is rebuilt or repaired. It also can cover personal belonging storage costs as well as pet boarding costs.
Your dwelling coverage typically accounts for the costs associated with reconstructing your home at current local building prices and quality levels, so it is crucial that you seek professional appraisal and review your policy regularly to keep it aligned with what it will take to rebuild it. Doing this ensures the insurer has an accurate assessment of its square footage, age and upgrades made over time as well as upgrades or improvements made.
Homeowner insurance policies usually cover additional living expenses (ALE). While this coverage can vary in terms of dollar limits or time periods, most providers require you to submit receipts for all expenses related to ALE before providing you with reimbursement checks for them. Also, many may assess how these costs compare with your normal living costs before offering full reimbursement of all claimed ALE expenses.
Flood Coverage
As a licensed insurance professional, your role in helping clients understand their coverage options is a key one. This involves informing them on the differences between homeowners and property insurance, explaining key distinctions between standard home and flood policies as well as why some households require both.
An HO-3 Special Form Policy is the most frequently purchased type of home insurance policy, covering 16 perils such as fire, vandalism, theft and earthquake damage or floods; however it excludes certain events like earthquake damage and floods which require separate policies. Most HO-3 policies offer either replacement cost coverage or actual cash value with depreciation taken into account.
HO-3 policies typically include dwelling coverage, which provides compensation for rebuilding costs if a covered peril destroys your home. Please be aware, however, that dwelling coverage doesn’t extend to detached structures such as sheds, barns and fences – these must be purchased as standalone policies or with an endorsement added separately.
As recent hurricanes have drawn attention to the need for flood insurance, now is an excellent opportunity to remind clients that flood protection should not just be limited to designated flood zones – mortgage companies require it and it is wise for anyone living in areas susceptible to flooding.
