WHAT YOU NEED TO KNOW
Your home is one of your most prized possessions…representing a safe harbor, a sense of continuity and comfort, and the place where you enjoy much needed rest, where you can hang your hat and lay your head with ease on the pillow at night. It’s also likely one of your greatest exposures to various kinds of potential losses…both those emotionally and those of a significant financial nature.
We also advise our clients to consider scheduling coverage for certain Valuable Items that you own in the way of cameras, collectibles, fine arts, firearms, furs, golf equipment, jewelry, memorabilia, musical instruments, silverware, souvenirs, and watercraft. These classes of items typically have a limited, if any, amount of coverage under the standard homeowner policy. Scheduling these types of items results in the most comprehensive form of coverage with the greatest piece of mind to you knowing that they’re fully covered…often at a minimal amount of additional premium.
Finally, it’s incredibly important that you understand the difference between Actual Cash Value coverage and Replacement Cost coverage under a homeowner policy. Actual Cash Value coverage (ACV) means that the insurance company will take into account the depreciated value of the property insured at the time of a loss…paying you only the value of the item at the time of the loss based on its age. This type of coverage typically results in you having to come up with substantial sums of money out of your own pocket to fix or replace the property in question…whether it be your whole home, or perhaps the roof, or your personal contents. We typically do not offer this type of coverage when extending a quote to you, instead we most often recommend Replacement Cost coverage (RC) on your home and contents.
Of even greater importance is understanding the various types of Replacement Cost coverage available for your dwelling itself in a home insurance contract. Simple Replacement Cost coverage is the insurance company’s agreement to replace your home subject to the perils being insured against in the policy up to the dwelling amount displayed on the Declarations Pages of the policy but no more. That amount would be the absolute maximum to be paid out in a covered claim.
The second form of Replacement Cost coverage on dwellings, and the most commonly written policy contract in our state, is Extended Limits Replacement Cost coverage. When this type of coverage option is selected, the homeowner policy contract contains a provision that the insurance company will expend up to a defined percentage beyond the dwelling limit displayed on the Declarations Pages at the time of a loss, if necessary, to repair or replace your home with one comparable to it in the event of a covered loss. The additional coverage limit on your home is typically expressed as an additional 20%, 25%, 50% or 100% of the dwelling limit of the policy should that additional coverage amount be necessary to repair or replace your home subject to a loss caused by a covered peril defined in the policy. This form of coverage is much better than simple or pure Replacement Cost coverage.
The third form of Replacement Cost coverage on dwellings is known as Unlimited, Uncapped Replacement Cost coverage…some companies might refer to it as Guaranteed Replacement coverage. When this type of coverage option is selected, the homeowner policy contract contains a provision stating that the insurance company will pay up to any amount necessary to repair or replace your home with one comparable to it in the event of a loss caused by a peril being insured against in the policy. This represents the very best form of Replacement Cost coverage for homes and less than 10% of home insurance contracts written in our state extend this form of vastly superior coverage to their insureds.
AN OPTION TO CONSIDER – EARTHQUAKE COVERAGE
The standard home insurance policy contract excludes coverage for earthquake damage. Many home insurers offer earthquake coverage in the form of an optional endorsement that can be added to your home policy. This is a catastrophic coverage that carries a sizeable deductible…most companies’ lowest deductible option on the earthquake endorsement is 10% of your dwelling limit under the policy…this means that a home insured with an expressed dwelling limit of $250,000 would result in a deductible of $25,000 for earthquake damage claims if you’ve opted to add the earthquake coverage endorsement. Though it carries such a large deductible, should a home partially or completely collapse or merely experience foundation cracks and damage, either is likely to lead to a claim amount in the neighborhood of tens of thousands of dollars, at a minimum, to as much as a total loss in the worst case scenario…therefore we would advise clients to at least consider the addition of this coverage option.
ANOTHER OPTION TO CONSIDER – FLOOD COVERAGE
The standard home insurance policy contract excludes coverage for flood damage. Flood insurance is a separate policy product and coverage is relatively inexpensive to insureds who don’t reside in a designated flood zone…these policies are commonly written through the National Flood Insurance Program and are administered by the Federal Emergency Management Agency (FEMA). The policies themselves are written on the paper of the various property insurance companies and commonly cover up to $250,000 on dwellings and up to $100,000 on contents. The most commonly selected deductible, and typically the lowest offered as well, is $1,250 on the dwelling and $1,250 separately on contents. Annual premium for NFIP flood policies qualifying for the Preferred Risk Program typically ranges from $400 to $700 annually. For insureds with homes in a designated Flood Zone, premiums are typically higher and coverage is available through both the NFIP and through private insurers.
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