Making sure you’re properly protected on your home insurance policy involves checking the limits on four separate coverages: dwelling, personal property, liability and loss of use:
How much dwelling coverage do you need?
Dwelling coverage protects the actual structure of your home (including your attached garage, porch, deck, and in-ground pool), so it’s important to have the right amount of insurance. Coverage for the cost of rebuilding your home can be tricky because the amount you paid for your home usually differs from the cost to rebuild it. Moreover, the current market value of your home may be much more than what you have in dwelling coverage (for example, the fair market value of your home may be $200,000, but it may only cost $175,000 to rebuild it).
You can avoid having too little or too much dwelling coverage by doing your own homework when it comes to your home’s replacement value. Consider the following questions and then follow-up with your agent or insurer if you have concerns about your policy’s dwelling limit:
- What are the chief characteristics of your home?: Know your home’s style (colonial, ranch, Cape Cod, Victorian, etc.), roof type, and square footage.
- Is your home custom-built or does it include any unique features?: If your home boasts any special moldings, from a kitchen nook to handicapped-accessible paths, be sure to advise your agent or insurance company so they can factor those in to your rebuild cost.
- What materials were used to build your home?: Know how your home was constructed (block, frame, masonry veneer, etc.) and the material of your roof (composite shingle, tile, metal, etc.).
To help ensure you’re adequately protected, ASI, one of the insurers in Progressive’s network and part of our family of companies, uses a replacement cost estimator to help determine the right amount of dwelling coverage for your home.
How much personal property coverage do you need?
Personal property or “possessions” coverage protects against damage to your belongings, even when outside of your home, so make sure your coverage limit accounts for all your stuff. You can do this by taking a full home inventory (including items kept in a storage facility) and maintaining a list of your possessions, especially the most valuable (it’s always helpful to save receipts and take pictures of your personal property). The sum of the value of all your items is how much coverage you need.
Often, the amount of personal property coverage is figured by using 50% of your dwelling coverage limit. For example, if your dwelling coverage is $400,000, you’ll have $200,000 in personal property coverage. If you feel like this isn’t enough coverage (perhaps your home inventory added up to $225,000), you can always choose a higher (or lower, if necessary) limit to suit your needs.
Most home insurance policies contain “sublimits,” which are limits within another limit. For instance, your engagement ring may be worth $10,000, but your insurer may have a $2,500 sublimit on jewelry. In those cases, additional coverage for particularly valuable items can be purchased by adding a “rider” to your policy. A rider, also known as “scheduling an item,” will often require an appraisal or detailed description of the item.
How much personal liability coverage do you need?
Most homeowners policies offer various limits of personal liability coverage.
Typical limits are as follows: $100,000, $300,000, $500,000
If you’re responsible for an injury at your residence, your personal liability coverage can protect you against a court judgement. Add up your bank, brokerage, retirement accounts, and property equity, then choose the liability limit that best reflects what you have to lose. For example, if you have $275,000 in assets, you want to choose $300,000 in personal liability. If you need more than a half million in coverage, consider buying an umbrella insurance policy, which offers additional liability protection.
How much loss of use coverage do you need?
If you’re unable to live in your home because of a covered claim, your loss of use (also known as “temporary living expenses”) coverage can pay for certain costs (groceries, temporary housing, boarding of pets, etc.) while your residence is repaired or rebuilt. Keep in mind that loss of use covers the excess of what you normally spend for certain daily expenses. For instance, if you typically spend $100 a week on groceries but must spend $300 to dine out because you’re unable to cook, loss of use can cover the $200 difference. Your coverage limit is calculated by using a certain percentage—such as 10 to 20% of your dwelling coverage. For instance, if your dwelling limit is $400,000, you would be covered up to $40,000 to $80,000 on a loss of use claim.
Info gathered from Progressive.com