Money Essentials

Getting the proper home insurance coverage

Here are some tips to help you make the right choices about homeowners insurance.


Just as there are different home styles, insurers offer a menu of different policies. For the majority of single-family homeowners, the most appropriate policy is the HO-3, sometimes called the special policy (in Texas, for some reason, it's known as the HO-B). It insures all major perils, except flood, earthquake, war, and nuclear accident.

You'll need deep coverage, up to and including 100% of your home's replacement cost. By insuring at, say, 90%, you're making the reasonable bet that your home won't ever be a complete loss. That may be a reasonable bet bit if you want to play it safe, insure at 100%.

Insurers generally cover a home's contents up to between 50% and 75% of the home's value. Make a list of your home's contents for a more exact estimate of your needs. That also provides a written record that's useful when you file a claim. The industry-sponsored Insurance Information Institute provides useful instructions on how to put together an inventory.

You'll also have to pick a deductible, which is the amount you pay yourself before the insurance kicks in. The higher you go, the more you'll save.

Buy the guarantees

Traditional guaranteed replacement cost coverage promises to pay whatever it takes to rebuild your home, even if it costs more than the original limits you purchased. That's crucial in the event that labor and building costs balloon after a major disaster. In many states, large insurers now cap the guarantee at 120% to 125% of purchased limits.

Your safest bet is to seek a company with no cap. However, if you've properly valued your home's replacement cost, the caps shouldn't scare you. It's unlikely that building and labor costs will go up to more than 120% of your home's insured value.

If it's not built into your policy, ask for replacement cost coverage for your home's contents. Without it, you'll end up with just the depreciated value of any object that's damaged or stolen.

Get these types of important coverage, too:

--Inflation guard

This option annually increases your premium at the rate of local building-cost inflation.

--Ordinance-and-law coverage

This rider, which covers the costs of bringing your home into compliance with current building codes, is a must if your home is more than a few years old.

Limit your liability

Your homeowners policy protects against lawsuits for accidents that happen on your property. It also covers you if your dog bites someone.

You might also consider umbrella liability coverage, which is additional coverage over and above your regular homeowners liability limits.

Consider these options:

--Displacement

Your homeowners policy also provides for living expenses if you're displaced; replacement of structures such as garages and sheds; and limited medical coverage for someone injured on your property. Don't buy more than the minimum offered. Depending on your situation, however, several other types of coverage may be worthwhile:

--Floods

Floods aren't covered by ordinary homeowners insurance. Flood insurance is available through the Federal Emergency Management Agency. In California, you may need earthquake coverage; check with the California Earthquake Authority.

--Home business coverage

Business property worth more than $2,500 isn't covered by a homeowners policy, so buy a separate policy -- also known as a rider -- to fill the gap. Business liability coverage must be purchased separately, too.

--Riders for valuables

A standard policy provides only minimal coverage for antiques, collectibles, furs, silver, jewels, cameras, computers, musical instruments, and firearms. For these, you need separate coverage.

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