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Getting the proper 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 percent of your home's replacement cost. By insuring at, say, 90 percent, you're making the reasonable bet that your home won't ever be a complete loss. That may be a reasonable bet. The basement usually remains intact almost regardless of what happens to the rest of the house. Still, victims of the devastating Oakland Hills, California fire in 1991 witnessed the destruction of even their basements. If you want to play it safe, insure at 100 percent.
Insurers generally cover a home's contents up to between 50 and 75 percent of the home's value. Make a list of your home's contents for a more exact estimate of your needs. That also provides written record that's useful when you file a claim. The industry-sponsored Insurance Information Institute provides a useful 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 percent 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 120 percent 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 important coverages, 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 homeowner's 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 homeowner's liability limits.
Consider these options:
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 coverages may be worthwhile:
Floods Floods aren't covered by ordinary homeowner's insurance. Flood insurance is available through the Federal Emergency Management Agency. In California, you may need earthquake coverage; check www.insurance.ca.gov for a list of insurers who provide it.
Home business coverage Business property worth more than $2,500 isn't covered by a homeowners policy, so buy a rider or separate policy 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, called a rider.