As a homeowner, you have a financial interest in protecting your property and belongings. Not only do you need insurance to cover the cost of rebuilding or replacing your home and belongings, but you may even be required to purchase coverage by a mortgage lender.
So how can you tell how much home insurance is enough? In this post, we’ll cover several of the coverage types available to Minnesota homeowners and help you better determine how much coverage may be right for you.
Coverage A -Dwelling
Coverage A on your insurance policy helps pay to rebuild or repair the structure of your house after a covered event. For both HO-3 and HO-5 home insurance policies, a covered event is any peril that is not excluded in writing in your home insurance policy. Since your home is probably your biggest asset, having sufficient Dwelling coverage could save you hundreds of thousands of dollars in the event of a loss. You need only pay your deductible, which typically ranges between $500 and $2,000.
The limits you select for your Dwelling are important for a number of reasons:
- Too little coverage could leave you short of funds to rebuild your home after a disaster
- According to the ‘Co-Insurance Rule,’ you could be penalized for partial claims if your coverage is less than what is required
- Insurers may calculate default limits for coverage areas as a percentage of your Dwelling coverage
Here at Pentagon Insurance, we want our clients to feel secure and fully protected against the damage or loss of their homes. Our Home Cost Estimator considers many different factors, including:
- Debris removal costs
- Post-disaster remediation
- Local construction costs
- The finishes and materials used for your home
For help determining how much Dwelling coverage you may need, contact our office today.
Coverage B – Other Structures
Coverage B covers other structures on your property in much the same way that Coverage A protects your home’s primary structure. This includes damages to your:
- Fence
- Detached garage
- Swimming pool
- Driveway
- Toolshed
- Pole barn
- Carport
- and more
Although you can request additional coverage, most insurance companies include coverage for other structures at a value of 10 percent of your limit in Coverage A.
Coverage C – Personal Belongings
Personal Belongings coverage protects the things you own, from the kitchen appliances and home décor to your electronics and clothes. Whether your purse and laptop are stolen from your car, or you lose all of your home’s contents in a house fire, Personal Belongings coverage helps reimburse you for your loss up to the limits of your policy.
This is also the section of your policy that will have varied terms depending on whether you have an HO-3 or HO-5 insurance policy. HO-3 only covers personal belongings for damages caused by specific named events that are listed in the policy. All other damages are excluded. HO-5 covers damages from all risks and perils except the few hazards that are excluded in the policy.
How Much Coverage Do You Need for Possessions?
Many insurance companies provide coverage for Personal Belongings as a percentage of your limit in Coverage A. Though this can vary, it usually falls somewhere between 50 and 80 percent of your Dwelling coverage, although you may need additional scheduled coverage for high-value items.
Default reimbursement for Personal Belongings is based on the actual cash value (ACV) of the damaged, stolen or destroyed items. If you prefer to be reimbursed based on the replacement value of your possessions, talk with an agent at our office about adding an endorsement to your policy.
We recommend taking an inventory of your home to calculate your actual coverage needs. By storing it somewhere safe, such as in a digital app, you can also easily access your inventory if you need to declare a loss.
Coverage D – Loss of Use
When homes need to be repaired or rebuilt, the families that live in them need to find a temporary place to live. If you are still paying a mortgage on your damaged home, how will you also pay for the cost of a hotel or rent? Loss of Use coverage, which is usually set at 20 percent of your Coverage A limit, can help cover the cost of excess living expenses until your home is habitable again.
Continue reading part two of “How much home insurance is enough?”
Thom Grubbs is an insurance agent and partner at Pentagon Insurance Agency in Elk River, MN. Outside of work, Thom likes to bowl, fish, spend time with his family, and volunteer at his church. Get in touch with Thom and let him make life a little easier by talking over your situation.
