If you’ve never thoroughly reviewed your homeowner’s policy, you could find yourself out of luck at your time of need. When you bought your policy, you assumed it would provide the necessary funds needed to recover from a disaster. However, if you are unfamiliar with your policy’s terms and conditions, you may not have as much protection as you think.
The standard homeowner’s insurance policy includes four basic types of coverage:
· Coverage for the structure of your home – If your home is damaged or destroyed by fire, lightning, windstorm, or other peril listed in your policy, your insurer will pay to repair or rebuild your home subject to the terms of your coverage. However, if the damage is caused by a flood, earthquake or mudslide, there would no coverage unless you had purchased a separate policy for these risks.
Most standard policies also cover detached structures such as a garage. Coverage for these structures is automatically provided at 10% of the amount of insurance you have on the structure of your home. You can purchase additional coverage if necessary.
Do you know if your policy would provide enough coverage to rebuild your home?
· Coverage for your personal belongings – Furniture, clothes, and other personal items are covered if stolen or destroyed by fire, wind or other insured disaster. Most companies provide personal belongings coverage equal to 50 to 70 percent of the amount of insurance you have on the structure of your home.
High-ticket items like jewelry are covered, but only at minimal dollar limits if stolen. To insure each of these items for their full value, you would need to add a special personal property endorsement to your basic policy.
Trees, plants and shrubs are also covered under standard homeowner’s insurance for theft, fire, lightning, explosion, vandalism, and riot. They are not covered for damage by wind or disease. Limits are usually $500 per item.
· Liability protection – This protects you against lawsuits for bodily injury or property damage that you or your family members cause to others. Liability coverage also pays for damage caused by your pets. Your insurer pays the cost of defending you in court and any court awards, up to the policy limit. You are also covered not just in your home, but anywhere in the world.
Liability limits start at about $100,000, but you should purchase more coverage. You can also purchase an umbrella or excess liability policy, which provides broader coverage, including claims against you for libel and slander.
Your policy also provides no-fault medical coverage if a friend or neighbor is injured in your home. Your insurer pays the individual’s medical expenses without a liability claim being filed against you. You can generally obtain $1,000 to $5,000 worth of this coverage.
· Additional living expenses – This pays for any additional costs in the event you are temporarily unable to live in your home because of a fire or other insured disaster. Many policies provide coverage for about 20% of the insurance carried on the structure of your home.
In addition to reviewing your homeowner’s coverage, you should keep updated records of your property in a safe location that is easily accessible. The Insurance Information Institute offers free software you can download to create a home inventory. Log on to www.knowyourstuff.org.
Finally, try to review your homeowner’s policy with your insurance agent annually. Your agent can help you determine if your coverage is still adequate for your needs.