Home. The word conjures up safety, security, and family. It likely includes everyone and everything that mean the most to you.
And for many people, their home is their greatest financial asset. With so much time, attention, and money invested, it’s crucial to make sure your home is properly protected.
But many people are putting this important investment, and their family, at more risk than they realize because they don’t understand their home insurance coverage and the factors that need to be considered.
Whether you’re a new home buyer or you’ve lived in your home for many years, it’s important to understand that your home and the people in it need proper protection.
Coverage considerations
Home insurance includes three types of coverage: structure, belongings, and liability. Each category has its own considerations.
Structure: Your home
It costs more to rebuild than you may think. Many people underestimate the cost to rebuild their home in case of loss. According to Marshall & Swift/Boeckh, two out of every three homes nationwide are underinsured by as much as 27%. Would you be prepared to foot the additional 27% of the cost to rebuild your home?
When insuring your home, it should be insured for 100% of its replacement cost. This is different from both the assessed value (the dollar amount placed on your home by your local government for taxation purposes) and the market value (how much you could expect to get for your home in the current real estate market if you were to sell). Replacement cost reflects how much it would cost to rebuild your house in the same spot, with materials of like-kind and quality.
“Rebuilding a home is almost always more expensive than building a comparable new one,” explains Steve Schofield, Personal Insurance Consultant at Member Benefits. “Demolition and removal of a destroyed home has to occur before rebuilding even begins. Local ordinances often place regulations on demolition, which can increase expenses. And when working on a single home, builders can’t buy materials at volume discounts. Plus, it generally takes longer due to the complexities of rebuilding.
“Think of it this way—housing prices rise and fall, but the cost of building materials and labor always continue to rise.”
For homes built during or after 1950, Member Benefits’ home policy pays the full cost to repair or replace your home with materials of like kind and quality without the limits imposed by most other insurers. For homes built prior to 1950, this coverage provides up to 125% of the dwelling limit on your policy.
Water damage isn’t automatically covered. While some types of water damage may be covered under your home policy, you need separate coverage for flooding. Flood coverage can only be purchased through the National Flood Insurance Program (NFIP). The NFIP offers flood insurance to homeowners, renters, and business owners if their community participates in the NFIP. Member Benefits sells and services these flood policies, which must be in place for 30 days before coverage begins.
Water damage due to drain and sewer backup or sump pump overflow may be covered if you’ve added an endorsement to your policy.
Don’t set it and forget it. Many homeowners eventually find themselves without enough coverage because they buy their policy and never look at it again. “We recommend you review your insurance coverages at least every other year, but it’s especially important to adjust your policy when you make improvements like upgrading a kitchen with custom cabinets or adding sqaure footage to your home,” explains Steve. Some companies offer inflation guard protection that automatically adjusts your coverage limits by a certain percentage each year to help keep up with increases in material and personal property costs. “However, members shouldn’t rely solely on this to keep their coverage current. Periodic insurance reviews will help ensure your coverage is still appropriate, which can mean eliminating coverages you no longer need and adding new ones you do. We can help you with that.”
Belongings: Your stuff
Personal property coverage. Home insurance also covers your personal assets up to policy limits. At Member Benefits, if your personal property is destroyed or damaged, our policy provides coverage equal to 75% of your residence coverage limit.
If personal property is stolen or damaged by a covered peril while away from home, our policy pays up to 100% of your personal property limit. We pay up to 10% of your personal property limit for property that is with your student while away at college.
Schedule high value items. Items that are “lost” are not covered unless they are scheduled. Scheduled personal property coverage is an optional add-on to your home insurance policy that provides coverage for a greater number of risks and may increase the coverage limits on specific, high-value items. This gives you additional coverage as well as protection from certain types of accidental loss such as droppage or mysterious disappearance. When you schedule property such as jewelry or musical instruments, you receive coverage up to the amount you specify. “Protection for your boat, snowmobile, or recreational vehicle can also be obtained by scheduling them on your policy,” adds Steve. A deductible may apply to some items.
Liability: Your responsibility
Accidents happen. A visitor slips on the ice on your front walk. Your runaway grocery cart causes someone to fall and break a hip. Accidents yes, but the reality is that you could be held financially responsible in any one of these situations, and each could easily exceed $100,000.
Liability claims against homeowners are quite common. Most experts recommend at least $300,000 worth of home liability coverage. Others, like Member Benefits, recommend even more. “Our home policy includes $500,000 of liability coverage. We don’t even offer anything lower,” says Steve. “The additional coverage is a relatively inexpensive way for members to protect their assets.” Liability coverage offers protection for you and all family members who live with you, and it typically covers incidents on or away from your property.
Avoid attractive nuisances. Outdoor additions such as trampolines and pools increase your liability. You may not know it, but from an insurance perspective, they’re considered an attractive nuisance—something that is likely to entice children and could pose a risk of injury. Other examples include artificial ponds, discarded appliances, and abandoned cars.
You have the burden of taking adequate measures to protect children. Even if someone comes over and uses the trampoline or pool without your knowledge, you may be liable for any potential injury they may suffer from it.
Insurers may handle attractive nuisances in several ways, from no exclusions or coverage with precautions, to specific exclusions or refusal to insure the home. Be sure to talk to your insurance company so that you clearly understand your specific options, obligations, and coverages in your plan.
Pooch particulars. Dog ownership is also more popular than ever. In fact, almost 90 million dogs are owned by 60.2 million households in the United States (Insurance Information Institute). They also report that dog bites and other dog-related injuries accounted for nearly one-third of all homeowners liability claim dollars paid out in 2018, costing $675 million.
Generally, home insurance policies do not exclude “canine exposure” from coverage. However, each insurer may handle the risk differently, from charging a higher premium, denying coverage for breeds construed as dangerous, or requiring the owners to sign a liability waiver for dog bites. Be aware that you run the risk of nonrenewal following a dog bite incident.
Consider additional protection. You may want to take liability protection a step further. Additional liability insurance (umbrella insurance) protects you when the unexpected happens by providing protection above and beyond your existing home insurance policy. And the good news is you can buy $1 million of additional liability protection very economically.
If you have a trampoline, pool, or dog, you may want to seriously consider umbrella insurance. However, don’t assume that because you have this policy that you are covered. Under some circumstances, you may not be. Contact your insurer so you understand your policy guidelines.
Create a record of your stuff
If you experience a fire or other disaster at home, would you be able to remember EVERYTHING you possess? Having an up-to-date home inventory can help you get your claim settled faster, verify losses on your income tax return, and help you purchase the correct amount of insurance.
You can get a free home inventory eBook by visiting weabenefits.com/homeinventory. Not only does it offer you a checklist to follow, but we also share some tips for how to get started, make the process easier, and keep it safely stored. Remember, we’re here as a resource if you need help or have questions.
Home sweet home
Protecting your home is also protecting everything that’s important to you—including your family. Knowing that you have reviewed your coverages, understand your liability, and made a record of your possessions will only make living in your largest investment that much sweeter because you’re properly protected.
RESOURCES
Personal Property Home Inventory eBook
Download our free home inventory eBook at weabenefits.com/homeinventory and pick up tips on how to get started, how to make the process a little less daunting, and when to consider insurance scheduling.
Buying a Home eBook
In the process of buying your first home, or thinking about purchasing one down the road? Our interactive Financial Guide: Buying a Home eBook is full of information on purchasing, evaluating, and protecting your new home, and includes tips on becoming a better insurance consumer. Find it, along with other helpful eBooks, at weabenefits.com/ebooks.
Free insurance review
Our personal insurance consultants can review your current insurance policy and help you understand the different types of home policy coverages and appropriate limits for the physical structure of your home, your personal belongings, and liability to others. Call 1-800-279-4030 or set up a personal phone consultation time at weabenefits.com/consults.