Coverage B, Other structures, separated structures:
Covers all detached structures, i.e. storage shed, detached garage, fence, gazebo, etc. Under HO3, combined coverage for all detached structures is 10% of dwelling coverage, but the option to raise this limit is available via an endorsement.
Applicable provisions:
Co-insurance clause:
In order receive full replacement value (like kind replacement cost) for damage to the house, dwelling coverage must be equal to at least 80% of the structure’s full replacement value not including the value of the lot. For example, a $100,000 structure must be insured for at least $80,000. If coverage is adequate, the insured will receive like kind replacement cost (i.e. the insurer will pay for like kind construction) less the deductible up to the policy limit. If coverage is inadequate (i.e. less than 80% of full value), then the insurer will pay less than the full replacement cost. Most insurers will not issue policies for less than 80% of the full replacement value of the house.
Guaranteed replacement cost:
For a higher premium a guaranteed replacement cost option also exists that allows the insured to receive full replacement value even if it exceeds the policy limit. Though the previous sentence is in reference to structures, personal property (coverage C) also benefits from guaranteed replacement cost as policyholders will receive replacement cost for losses as opposed to actual cash value which is typically less due to depreciation. Some limitations and rules apply to the guaranteed replacement cost option. For example, sometimes percentage limits exist on the maximum replacement value (i.e. 150% of policy limit) and dwelling coverage must equal 100% of full replacement cost, rising as the value of the home rises. HO-5 policies automatically include guaranteed replacement cost for coverage A (dwelling, attached structures), B (other structures), and C (personal property). Keep in mind that despite the “guaranteed replacement cost” provision, policy limits (maximum caps on indemnity paid) exist. Sometimes instead of guaranteed replacement cost companies offer extended replacement cost in order to protect themselves. Be sure you fully understand your particular policy.
Inflation guard endorsement:
An inflation guard endorsement can be added to ensure that insurance coverage keeps pace with the increasing value of the home and adequate insurance is maintained. This will help provide protection against falling below the 80% threshold and receiving less than full replacement value. Note that inflation guard can also be purchased for floater policies in order to keep pace with items that increase in value (e.g. collectibles).
