Homeowners & Renters

Coverage A, Dwelling, attached structures coverage:

Dwelling and attached structures are included. Structures under construction as well as building materials located on the property are also covered. Though some business may take place, the dwelling must primarily serve as a residence. If liberal amounts of business take place, a business policy should be considered in order to ensure full coverage or property and equipment.

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.

Functional replacement cost:

As opposed to like kind replacement, cheaper materials are used that serve the same purpose. Functional replacement cost would be used when, due to depreciation or other factors, actual replacement costs of materials or craftsmanship exceed market value of the property by a substantial margin. By agreeing to settle losses using functional replacement cost or cash value, owners of homes in this category can obtain coverage more easily and for more reasonable premiums.

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).

The following may not be applicable in all areas of the country:

Insurance against robbery and burglary:

This option exists for individuals in certain states. Individuals living in high-risk conditions may consider this option.

Earthquake and Flood insurance:

These additional coverages are excluded from basic homeowners policies, but can be added. Earthquake insurance is usually written as an endorsement and is easier to obtain than flood insurance. In order to add flood insurance certain conditions must be satisfied in reference to local flood control. Flood insurance is provided by the National Flood Insurance Program (government program) but can be purchased through some private insurance companies.

Home-business endorsement:

Adds increased coverage and liability for business related incidents and damages. Most basic policies have limited coverage on home office equipment and exclusions on business related liabilities, for example.

Sewer, storm drain backup coverage:

A basic policy may not cover damages caused by a backed up sewer.

Beach and windstorm plans:

Available in certain coastal states where threat of storms and hurricanes is high and insurance is difficult to acquire or afford, primarily Florida. Coverage in this category is similar coverage in other residual insurance markets.

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).

Coverage C, Unscheduled personal property:

Covers personal property that is owned and used by the policyholder. Property does not have to be located at residence, but property located at a secondary residence is not covered. Multiple exclusions apply including but not limited to property rented to other individuals, automobiles, sound equipment in an automobile and animals.

In addition to a number of exclusions, dollar limits and sublimits also exist. Sublimits (dollar limits on indemnity paid) generally apply to items with excessive value like jewelry, art, collectibles, expensive clothes, etc. These sublimits are typically very low if you do possess such items, but the purpose is to maintain reasonable premium costs for the average homeowner. Coverage of these items can be increased in two ways: by either raising homeowner coverage as a whole or by adding protection through floater policies. While both ways are feasible, for items of excessive value it is advisable to use a floater policy to ensure full coverage. It is recommended to create an itemized inventory of the items in your home and base your decision for coverage on this list. Additional explanation of floater policies is provided below.

When attempting to recover damages for items from your insurance company most will require some sort of proof of ownership and estimated value (including depreciation) for the property in question. An inventory of personal property is a must have and should be kept in a secure location (i.e. safety deposit box) in case fire or some other event that destroys the residence. A room-by-room video or an itemized list of some sort are a couple of ideas.

Coverage C is trickier than other property coverage under A and B. Be sure that you fully understand your policy, its requirements, inclusions and exclusions. Seek clarification on anything you do not fully understand.

Applicable provisions:

Floater policies:

As mentioned above, sublimits (dollar limits on indemnity paid) apply to items of excessive value like furs, jewelry, firearms, collectibles etc. A personal article policy only provides protection for items named on the policy while a personal property floater covers all items. Under HO3, coverage for personal property is actual cash value replacement (factors in depreciation) and is limited to 50% of dwelling coverage, but the option to raise this limit is available.

Market value:

In basic policies personal property is replaced at actual cash value, which factors in depreciation. In addition to requiring record keeping, indemnity received is often significantly less than what it will cost to replace the item. This stipulation does not apply to the HO-5 policy which automatically includes like-kind replacement (i.e. does not factor in depreciation).

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).

Coverage D, Loss of use:

Covers costs of losses when dwelling is unable to be occupied. This can be due to either damage or partial damage to the home, evacuation due to a natural disaster, inability to occupy home due to prevention by authorities, etc. Owners will be reimbursed for additional living expenses due to dislocation. Additionally, if the property is rented to others, the owner will be reimbursed for loss of rental income up to fair market value.

Coverage E, Personal liability:

Covers costs up to liability limit for defense costs, accidental damages and other related costs resulting from damage to property or injury to a third-party. Incidents occurring both at and away from the residence can be covered. Coverage excludes auto accidents.  Accidental damages and injuries caused by members of the policyholder’s family are covered.  The typical HO-E coverage limit is $100,000.

Additional coverage can be added by either increasing coverage through an endorsement or adding a personal liability (umbrella) policy. An umbrella policy provides additional liability coverage to supplement homeowners and auto insurance policies. These policies are relatively low-cost and are recommended to wealthier individuals who bear much higher liability risks.