There’s a lot to understand when it comes to home insurance. First, you need to determine how much home insurance is enough for each type of coverage, and then you’ll choose a deductible and endorsements. Instead of getting overwhelmed making these choices, this post will help you sift through your options and learn about the important coverages available on two of the most commonly purchased policies – the HO-3 and HO-5.
What are HO-3 and HO-5?
HO-3 and HO-5 are the names of two different policies offered by Wisconsin home insurance companies. These are the most frequently selected policies by homeowners due to their broad coverage and versatility. Both provide open-peril coverage for Dwelling coverage, as well as a wide range of other coverages. They differ in their coverage for personal belongings, with HO-3 providing coverage only for named perils and HO-5 providing open-peril coverage for all risks except those excluded in writing.
Coverage A (Dwelling)
Dwelling coverage is protection for the structure of your house and anything directly attached to it, such as your front porch or backyard deck. This coverage pays for repairs or replacement of the primary home structure when it is damaged or destroyed due to any cause other than those excluded in your homeowner’s insurance policy.
Here at Gutman Insurance, we use a Home Cost Estimator to calculate the coverage needs of our clients. This accounts for several factors like clean-up costs, remediation, the size of your home, the types of materials used for your home, and local construction costs. We always recommend insuring your home for its replacement value – not the balance of your mortgage or the market price you paid for your house.
If you under-insure your house, you may also find that you are under-insured for other coverages on your home insurance policy, since many insurance companies use your Dwelling coverage to calculate the default limits on your Other Structures, Personal Belongings, and Loss of Use Coverage. Furthermore, having too little coverage puts you at risk of a major financial loss if you need to file a total or partial-loss claim.
Policy-holders must share in the cost of loss and damage claims. This is known as a deductible, which could range between $500 and $2,000 depending on your preferences and budget. We recommend choosing a deductible you could reasonably afford after an unexpected loss, but consider that higher deductibles typically yield lower annual insurance premiums. Talk to an agent here at Gutman Insurance for help determining which deductible amount could be right for you.
If you have additional structures on your property that are detached from the primary structure of your house, you need separate coverage that will help pay to repair or rebuild them after a loss. Whether a car crashes through your fence and into your swimming pool or a tree smashes your pole barn, ‘Other Structures’ coverage can help pick up the pieces, usually with limits equal to 10 percent of your Dwelling coverage.
Your home is filled with two things: plenty of love and a whole lot of stuff. Standard home insurance covers your belongings, usually for up to 50 – 80 percent of your Dwelling coverage limit. There are also additional dollar limits placed on specific categories of high-value items, such as firearms and jewelry. To ensure you are getting enough protection to cover your losses, we recommend reviewing your coverage needs with an agent here at Gutman Insurance.
Often, policy-holders find that they need additional scheduled coverage for high-value items, such as special collections. Furthermore, many homeowners opt for an endorsement that guarantees payment for the full replacement value of damaged, destroyed, or stolen items – not just the actual cash value coverage that comes standard on a typical insurance policy. We also recommend downloading an app that can help you maintain accurate records of your home’s inventory. Having a digital copy to access after a loss can help with the claims process and make it easier to declare your losses.
Loss of Use
If you cannot live in your home due to a covered event, how will you pay for an apartment or hotel while still paying your mortgage? Instead of dipping into your savings or stretching your budget, Loss of Use coverage helps ensure you have the money for excess living expenses until you can return home again. Typically, Loss of Use comes with default coverage limits equal to about 20 percent of your Dwelling coverage.
The next coverage on your home insurance policy is personal liability protection. Although this does not directly protect your home and belongings, it can shield your assets against loss due to financial responsibility in a lawsuit.
A standard home insurance policy generally includes personal liability coverage for third-party bodily injury and property damages. That means you are generally covered for damages a member of your household accidentally causes to someone who does not live in your home. This could include damages and injuries occurring at your home or those that you, your child, or your pet cause while away from home (with certain exceptions for events like car and boat accidents). Examples might include:
- A bicycle accident involving your child and a pedestrian
- A neighbor who trips over your water hose
- A lawn care provider who falls in a hole in your yard
- An emergency room visit when your dog bites a child at the park
You may not be able to prevent every accident, but you can financially prepare for the unexpected. We here at Gutman Insurance generally recommend that our customers purchase high-limit personal liability protection – usually a minimum of $100,000 to $300,000. Without adequate coverage, your personal income and assets could be at risk in a lawsuit.
When someone gets hurt at your home, medical payments coverage ensures they get the care they need, regardless of fault. Limits for this coverage are typically low – usually between $1,000 and $5,000. However, this may be just enough to cover x-rays, doctor’s visits, an emergency room visit, or even a health insurance deductible. While it will not eliminate your potential liability for a guest’s injury, it could be enough in some cases to help avoid a lawsuit.
The endorsements on your home insurance policy are optional, but they facilitate the personalization of your coverage to fit your individual needs. These coverage enhancements provide additional coverage for certain risk exposures that only certain homeowners are vulnerable to. They also provide extra benefits for homeowners who prefer additional compensation for a claim.
For example, you may opt to include a replacement cost coverage endorsement for your personal belongings if you prefer reimbursement for possessions based on the cost to replace them rather than their depreciated, actual cash value. Another endorsement – the inflation guard endorsement – helps ensure you continue to have enough coverage to rebuild your home in the future as building costs rise over time. Other examples of common home insurance endorsements include:
- Water and sewer backup protection
- Home business coverage
- Scheduled coverage for high-value belongings
- And more
Beyond Home Insurance
Lastly, many homeowners choose to reinforce the personal liability coverage in their home insurance policies by purchasing umbrella coverage. This is supplemental liability protection that pays for liability damages exceeding the limits of your primary coverage. Most umbrella insurance policies provide at least $1 million in supplemental liability protection, with additional coverage available in million-dollar increments. At an average of just $200 per year or less, it is an affordable way to protect your future better.
Umbrella insurance has safeguarded many families against financial ruin in the face of million-dollar lawsuits. Talk to an agent here at Gutman Insurance to find out how it can better protect your family’s income and assets, too.