Homeowners insurance can look straightforward on the surface, but there are many details that determine whether a property is actually insured the right way. How a home is owned, how it is used, its replacement cost, detached structures, and optional coverages can all affect the protection provided by a policy.
Understanding those details before a loss occurs can help homeowners avoid unexpected gaps in coverage.
Homeowners Insurance Has a Lot of Moving Parts (2:36)
Compared with auto insurance, homeowners insurance can involve considerably more variables. The way the home is occupied, the property itself, additional structures, and specific risks all need to be considered when a policy is written.
Some losses homeowners may assume are automatically covered may actually be excluded or require additional coverage. Flood is one important example. Earthquake coverage is another. Certain types of electrical damage, such as damage caused by an artificially generated electrical current, may also require additional coverage depending on the policy.
Other details can easily be overlooked as well, including additional land, animals, docks, detached garages, apartments, and other structures on the property.
Property Coverage and Liability Coverage (5:26)
A homeowners policy generally contains two major sections.
The first addresses property damage, including damage to the home caused by covered losses such as fire, lightning, and windstorm.
The second addresses liability. This can provide protection when the homeowner is legally responsible for bodily injury or property damage to someone else. Examples could include a dog bite or an injury that occurs on the homeowner’s property.
Both sides of the policy are important. Homeowners aren’t simply insuring the structure itself. They’re also protecting themselves against certain liability exposures connected to owning and occupying the property.
How Is the Home Being Used? (6:49)
One of the first questions an insurance agent needs to ask is how the property is being used.
Is it your primary residence? A second home? A seasonal property? A long-term rental? Are you renting it through Airbnb or VRBO?
Those distinctions matter because different uses may require different types of policies. A property being rented to someone else, for example, may need a landlord or dwelling fire policy rather than a traditional homeowners policy.
Occupancy can also change over time. If you move out of a home while it is for sale or the property becomes vacant, your insurance company needs to know. Certain coverages can change after a home has been vacant for a specified period.
Who Actually Owns the Property? (7:35)
Ownership is another important detail.
A home might be owned by an individual, spouses, multiple family members, a trust, or an LLC. The insurance policy should accurately reflect the property’s legal ownership.
This becomes especially important when ownership changes. If you complete estate planning and transfer your home into a living trust, for example, your insurance agent should be notified so the policy can be updated appropriately.
Investment properties may also be held in LLCs. Because ownership structures can have both insurance and legal implications, property owners should coordinate with their insurance agent and attorney to make sure everything is structured correctly.
Replacement Cost Is Not Market Value (14:38)
Coverage A is the portion of a homeowners policy that covers the dwelling itself. One of the most important decisions is determining how much coverage the home needs.
That number is generally based on replacement cost, not what the property would sell for.
Market value can be heavily influenced by location. Two identical homes could have dramatically different selling prices depending on where they’re located, but the cost to rebuild them may be similar.
At the same time, rebuilding costs can vary because of accessibility, material prices, labor costs, and local conditions. A mountain home that is difficult to reach may cost more to rebuild simply because getting labor and materials to the property is more challenging.
Natural disasters can also cause construction costs to increase quickly as demand for labor and building materials rises.
That’s why dwelling coverage should be reviewed periodically rather than treated as a number that never changes.
Don’t Forget Detached Structures (18:40)
Coverage B generally applies to other structures on the property, such as detached garages and certain other buildings.
A common starting point for this coverage may be around 10% of the dwelling coverage. That doesn’t necessarily mean it’s enough.
For example, a home insured for $500,000 might have approximately $50,000 in other-structures coverage. If a detached garage would cost considerably more than that to rebuild, additional coverage may be necessary.
Construction creates another consideration. A new detached structure being built may require a builder’s risk policy during construction rather than relying solely on the existing homeowners policy.
Review Your Property With Your Insurance Agent (20:08)
There isn’t a one-size-fits-all homeowners policy. Properties, ownership arrangements, occupancy, construction, and liability exposures can all be different.
An experienced insurance agent can review the property, ask how it is being used, identify additional structures or exposures, and explain coverage options that might otherwise be overlooked.
Before choosing a policy based primarily on price, make sure you understand what you’re actually buying. Saving money on the premium doesn’t help much if you discover an important coverage gap after a claim.
Have questions about your homeowners insurance? Contact Moore Insurance Services to review your current coverage and make sure your policy reflects your home and how you actually use it.
Insurance coverage varies by policy and carrier. All coverage is subject to the terms, conditions, limitations, and exclusions of the policy issued. Contact a licensed insurance professional regarding your individual situation.