Insuring your home is a wise decision because it is the largest investment most people make. If the home has a mortgage, the lender usually requires insurance coverage to protect against the risk of loss due to fire, flood, strong winds, and for general liability issues.
Coverage is available for both the home and its contents including personal property. Each homeowner’s insurance policy covers specific risks of property damage or loss, such as theft, fire, or wind damage.
Insurance covers four categories, which are:
- The home itself.
- Other structures, like a fence or a shed.
- Personal property.
- Additional Living Expenses (ALE) or Loss of Use
The home, fence, shed, and personal items are all examples of property.
Property insurance helps to cover the cost of damage to the house and personal property of the occupants. Additionally, property insurance may also cover other things on the property, such as a detached garage, a shed for tools, and separate guest homes, plus the items kept inside of these structures.
Each homeowner’s policy is different, so ask the insurance agent to explain exactly what items have coverage in your insurance policy. In addition, tell your insurance agent about things like boats, which may need a special policy of their own.
There is a limited amount of coverage for personal items. If you have valuable things like jewelry, antiques, furs, firearms, or expensive electronic equipment, it may be necessary to purchase an endorsement for an additional premium to raise these limits in order to have sufficient insurance coverage for these valuable items.
Additional Living Expense
When a home has damage to the extent that the occupants cannot live in it while repairs are ongoing, then they will have additional expenses to live somewhere else until they can return home. Insurance policies call this Additional Living Expense (ALE) coverage when they pay for these expenses under a homeowner’s policy.
This insurance also covers these expenses when there is a mandated evacuation of the neighborhood, due to an emergency of the type covered by the policy, if the evacuation order comes from either law enforcement or governmental emergency management efforts.
For accidents on the property, which do not involve automobiles, personal liability insurance covers these types of issues. A typical claim might arise when someone gets an injury from a slip and fall on your property. Personal liability insurance pays the claim and legal costs, up to the policy maximum limit, for any lawsuits where you have legal liability.
Personal liability insurance covers all members of the family who live on the property, but does not pay for claims resulting from intentional harm or damage. Each policy has certain exclusions, so check with your insurance agent to understand the details.
No matter who is at fault, if someone is accidentally injured in the home; this type of coverage pays the medical care expenses. There is an exception where the policy does not pay, when the injury happens due to any home-based business activity.
Inflation plus any improvements to the home increases the cost of replacing the home and the personal property it contains. With inflation guard, the homeowner’s policy automatically increases to make sure the insurance coverage is sufficient in relation to current construction and replacement costs. Without inflation guard, it is the homeowner’s responsibility to check periodically with their insurance agent to make sure the level of coverage is adequate to cover any catastrophe.
What is the correct amount of homeowner’s insurance?
The best way to determine insurance requirements is to calculate the total cost for completely rebuilding a damaged home and replacing all its contents. This includes the cost of construction materials and labor to re-build the home to meet the standards of the existing building codes. Insurance, which is less than this amount is inadequate.
This replacement cost amount is different from the purchase price, the mortgage amount borrowed, and the property tax appraisal. You insurance agent will help create a comprehensive replacement cost estimate, to make sure you have enough insurance coverage.
Increased Limits for Personal Property
Check with your insurance agent to determine if there is a need for special extra coverage for valuable items such as antiques, boats, guns, jewelry, and silverware.
Wind Damage Coverage
Damage caused by wind has coverage in most policies, unless the homeowner has intentionally waived this coverage or the home is in a Wind-Pool area. In Wind-Pool areas, exclusion of Windstorm Coverage from homeowner’s policies is common. It is necessary to buy a separate policy to get Windstorm Coverage in those areas. Most real estate lenders require Windstorm Coverage for the home when there is a mortgage.
Damage by flood is not coverage found in most homeowner’s policies. It is necessary to purchase flood insurance as a separate policy. Usually, there is a thirty-day waiting period before the insurance goes into effect, unless you get the policy at the same time as the home purchase.
Sinkholes and Catastrophic Ground Collapse
Florida has more sinkholes than any other state in the nation. A recent change in Florida law requires authorized insurers to cover “catastrophic ground cover collapse,” but damage caused by a sinkhole may not be covered by your policy.
That’s because the law defines catastrophic ground cover collapse differently from sinkholes.
Florida law defines a sinkhole as “a land form created by subsidence of soil, sediment, or rock as underlying strata are dissolved by groundwater. A sinkhole may form by collapse into subterranean voids created by dissolution (the dissolving) of limestone or dolostone or by the subsidence as these strata are dissolved.”
“Catastrophic ground cover collapse” is defined as “geological activity that results in all of the following: 1). The abrupt collapse of the ground cover; 2). A depression in the ground cover clearly visible to the naked eye; 3). Structural damage to the building including the foundation; and 4). The insured structure being condemned and ordered to be vacated by the government agency authorized by law to issue such an order for that structure.”
This means that if your home is damaged by sinkhole activity, but does not meet all four criteria for catastrophic ground cover collapse – for instance, you may have foundation cracks, but the home is still livable – your insurance may not pay for the damage if you do not have sinkhole coverage.
Ordinance and Law Coverage
This type of insurance is useful to protect from the added risks of changes in the building code or local ordinances, which require meeting higher, more-costly building standards in the case of the home needing replacement. This happens because building codes change over time. An older home, which suffers damage and needs repair, requires rebuilding to the current standards.
Current standards usually are quite different from those that were in place when the home was originally built. Check with your insurance agent to see if your policy has this coverage or if you need to add it. Even when included, it is prudent to make sure the policy limits are high enough to avoid the problem of having to pay extra repair costs from new building codes.
In order to comply with current building codes, the re-construction of the home may need a different design and may require the use of different, more-costly, building materials. Any claim for damage covered under a homeowner’s policy, which does not have ordinance or law coverage, means the insurance company will not pay for the extra expenses of meeting new building codes.
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