Home Insurance

COVERAGE LEVELS
There are lots of special coverage provisions offered by insurers, but here are some basic questions that you should answer as part of the home insurance process:

In the event of a serious loss, let's say it's a fire that destroys the house, how would I fare?

- In most cases, you want to insure your dwelling and its contents for their replacement values, which will likely differ from the dwelling's market value and your property's depreciated cash value. You also should probably get a policy with automatic inflation adjustments so that the replacement cost keeps pace with the general level of price increases. (Homes insured under HO- 8 policies are only covered for repair costs or actual cash values, since replacing them would be so costly. Owners of such homes could always get replacement insurance under another type of policy, but they'd probably pay astronomical annual premiums.)

- Standard coverage normally insures your possessions at 50 percent of the value of your dwelling. Many people boost this coverage to 70 or 75 percent with additional protection. But there are still individual limits on certain types of personal property (see below).

- Free-standing structures on your property (garages, gazebos, tool shed) are also covered, with standard protection equal to 10 percent of your dwelling. Trees and shrubbery normally can be replaced up to a limit of 5 percent of your dwelling coverage. As in the case with your personal property, you should assess your needs to determine if you want to pay extra amounts to increase these levels of protection.

- Also, you need to pay attention to what might happen if you were to lose the use of your home for an extended period. Loss of use provisions are important elements of homeowners' policies -- and coverage levels equal to 30 percent or more of your dwelling's insurance aren't unusual.

If someone who is not covered on my health insurance were to suffer a serious injury in my house, and I was found liable, how would I fare?

- The standard level of liability protection in the homeowners' policies has been $100,000 but it's rising all the time (surprise!). Today, $300,000 is not an uncommon amount, and even higher levels are recommended for affluent homeowners with lots of assets to protect. In this situation, so-called "umbrella" policies have become popular. These policies provide excess liability coverage on both your homeowners and automobile policies, and are not that expensive (you normally need to carry both underlying policies with the same insurer).

Do I have certain possessions - computer equipment, cameras, jewelry - whose replacement values far surpass normal coverage limits in my policy?

- Standard policies may not come near covering the replacement costs of even moderate amounts of home electronics hardware or expensive possessions. For relatively small amounts, you can purchase "floaters" that will add protection to certain types of personal property.

- If present trends continue, it's not to far off the mark to say that in 10 years, every adult in the United States will have a home-based business or office. Equipment and related business assets may not be satisfactorily covered unless you obtain additional protection.

Can I afford a high deductible, say $1,000, in order to save money on the policy?

- The differences in annual premiums between policies with deductibles or $250 (you pay the first $250 of damage, the insurer pays the rest), $500 and $1,000 may easily be worth 20 to 30 percent of the annual premium. So, if you can afford the expenditure, and want to place a small bet that you won't face a home-related loss, consider a larger deductible.

What other protections does my policy provide?

- Homeowners policies regularly provide other types of coverage, including off-premises theft protection and unauthorized use of your credit cards. Make sure you understand which provisions are included in the standard coverage you elect to purchase and which may require supplemental premiums.