Homeowners Insurance
A home insurance policy is required by a mortgage company during the time frame in which you are paying off the financing of your home and can often be included in the cost of your monthly payments in the form of an escrow account. Home insurance also contains many different types of coverages packaged together to help protect your home, your contents, as well as providing liability coverage world wide as a result of a covered loss and or accident.
Types of coverages for Homeowners Insurance?
The most common home insurance coverage form the (H03) contains 3 major coverages. These are:
Liability coverage:
This coverage works to protect you in the event of causing personal injury and or property damage to a third party.
Dwelling Coverage:
This coverage works to repair and or rebuild your home in the event of a covered cause of loss to either partial or all of the home.
Personal Property Coverage:
This protects all of the contents within the walls of your home with additional sub limits for personal property away from the premises. For high value items such as Jewelry, Watches and Fur you have the ability to add additional coverages and or schedule these items on your policy so that you may receive replacement cost value for these items.
Other Structures Coverage:
This coverage provides for a percentage of the dwelling limits to cover additional structures such as fences, pools and sheds.
Loss of Use Coverage:
This coverage helps cover any additional out of pocket expense that may be incurred as a result of a covered loss and being displaced from the home. This coverage can help cover the cost of a hotel, cost of eating out and additional travel time if you are unable to stay in the residence during the repair process.
Medical Expenses Coverage:
This is not at fault coverage that protects you in the event of someone being injured or claiming to have been injured on your property.
How much coverage do I need for Homeowners Insurance?
Liability Coverage:
Just like in an auto insurance policy I strongly recommend higher limits of liability. The cost in comparison to the possible loss incurred as a result of being under insured is minimal. For 20-50 dollars a year you can increase your limits of liability by double or triple. This liability protection also follows you world wide. I would say a normal amount of liability coverage on a home policy is $300k. While this may seem like enough, for less than $5 a month you can often time increase this limit to $500k. Depending on your situation, I always recommend higher limits, but do not recommend anything less than $300K. Keep in mind your home insurance liability WILL NOT pay damages as a result of an auto accident.
Dwelling coverage limits:
This coverage is based strongly on the value of your home and the cost to rebuild your home at today’s cost of labor and material. If a mortgage is present on the home the mortgage company may require you to carry a minimum amount of dwelling limits equal to the amount of the loan.
The limits for personal property, other structures and loss of use are based on a percentage of your dwelling limits. For easy math if you have $100k in dwelling limits most policies come standard with 60% for personal property ($60k), 10% for other structures ($10k) and 10% for loss of use ($10k). You have the ability to raise or lower these limits based on your individual circumstances.
Medical Payments Coverage:
This option is primarily left up to you. You can add a little or as much as the carrier will allow. Coverage limits range from carrier to carrier.
How do deductibles work?
Deductibles are built into a home insurance policy as a form of self insurance or risk retention. The deductible is also one of the biggest rating factors for a home insurance premium. The lower the Deductible the Higher the Premium and vice versa. In the state of Oklahoma a home insurance policy often contains two different deductibles.
The first form of deductible on a policy is the wind and hail deductible. Many people view this as a roof deductible, but that is not the case. This deductible would be applied to all damages in the event those damages were caused by a wind storm, tornado or hail damage. For many companies a minimum of a 1% wind and hail deductible are very common. This would indicate 1% of your dwelling limits. If you have $400K in dwelling limits and sustain damage as a result of a covered wind/hail loss you would be responsible for $4,000 of the damages. With this type of deductible you would not want to submit a claim to the insurance company if the damages are less than $4k. Because, if the damage does not exceed the deductible the insurance company will not pay anything, and you will maintain that claim as a part of your insurance history for 5 years causing your premiums to increase.
The second form of deductible is known as the All other Peril. This deductible would be applied in the event of a covered loss that is not caused by wind and/or hail. These types of damages often include fire, theft and water damage caused by a broken water line in the home. This deductible can be the same as the wind and hail deductible but is often lowered to reduce out of pocket expenses. This deductible can also be in the form of a percentage or a flat dollar amount such as $1,000. Whichever amount you choose, you will be responsible for that amount in the event of a covered loss.
What is an Escrow account?
An escrow account is designed to manage your property taxes and insurance premiums for your home. By forming an escrow account and combining it with your mortgage payment the escrow company will pay your home insurance and property taxes each year on your behalf and collect those premiums back in the form of your combined mortgage and escrow payment. Mortgage companies like escrow accounts as it provides more of a guarantee that the premiums will be paid in full and on time. Another benefit is that you will receive a really good discount if your home insurance is set up to be paid by your escrow.