Understanding your insurance policy is so important, although rarely at the top of your to-do list. Insurance coverage provides serious financial protection against property loss and damage from major weather events, accidents, theft and more, and protects your assets from liability claims. Standard policies don’t cover everything, so you may need additional coverage to protect against perils such as floods and other natural disasters.
According to the Insurance Information Institute and data from Standard & Poor’s Global Market Intelligence, rising material costs, supply chain disruptions and climate change are combining to drive premiums up by an average of 4 percent throughout the nation, with Florida leading the way at increases up to 25 percent. It’s important to know what’s excluded, what’s covered, and to ensure you have enough coverage.
Standard policies include four types of coverage:
- Other Structures
- Personal Property
- Liability Protection
1. Dwelling Coverage
Many policyholders think they need to get coverage equal to their property value, which is not the case. Your property value includes the value of your land. Dwelling coverage covers your home’s structure —not its contents or land. Features like installed fixtures and permanently attached appliances are also covered. Dwelling coverage should equal your home’s replacement cost. You should get enough dwelling coverage to rebuild your home at today’s prices. The cost of rebuilding could be higher or lower than its price depending on location, the condition of your home, and other factors.
2. Other Structures
If your home or business is damaged by hurricane, hail, lightning, fire, or other disaster, your insurance pays to repair or rebuild your property. Your policy should also cover detached structures like a garage or a shed. This coverage is typically about 10% of the total amount of insurance you have on your home structure.
3. Know Your Exclusions
It’s very important to note, standard policies typically do not pay for damage caused by a flood, earthquake or routine wear and tear. When purchasing coverage for the structure of your home, remember this simple guideline: Purchase enough coverage to rebuild your home. Get supplemental policies where applicable.
A deductible can be either a specific dollar amount or a percentage of the total amount of insurance on a policy. It’s essential to understand your deductible and make sure you’re comfortable with that amount in the event you have to file a claim.
Hail & Wind Deductibles
Hail and wind deductibles are most commonly paid in percentages, usually from 1-5%. Flood insurance offers a range of deductibles. (Source: Insurance Information Institute)
Standard homeowners insurance does not cover flood damage. If your property is located in a high-risk flood zone, FEMA recommends purchasing a flood insurance policy. Find out whether you’re in a flood-prone or high-risk area with FEMA’s Flood Map Service Center. Even if you don’t live in a high flood risk area, you can still be in danger of loss from a flood. If you own a business, damage from flooding is not typically covered under a standard commercial policy. Flood coverage is sold through the National Flood Insurance Program and takes 30 days to take effect, so don’t wait until the last minute to purchase.
Hurricane deductibles are generally higher than other policy deductibles and usually take the form of a percentage of the policy limits. These deductibles are calculated as a percentage of your property’s insured value. The typical hurricane deductible is between 1-5%. Policies in some coastal areas could have an even higher deductible. (Source: Insurance Information Institute)
Earthquake damage is typically excluded from homeowners insurance policies. Earthquake coverage has percentage deductibles that range from 2-20% of the replacement value. This type of protection is going to give you the aid that you need to help repair or replace the loss of your contents. If your property itself is destroyed, this can help you to rebuild. The cost of this coverage can vary significantly from one area to another, depending on the likelihood of a major earthquake. (Source: Insurance Information Institute)
5. Building Code Coverage
It’s important to have building code coverage. If your home or business is damaged from a major event, weather catastrophe or fire, it will have to be replaced back to current codes, because those codes are what a quality, licensed general contractor must follow at the time of rebuild or repair. If this isn’t included in your policy, it could cost you tens or even hundreds of thousands of dollars, especially if your property is more than 10 years old. Most reputable insurance carriers include this in their policies, but it’s important to check, as policies vary widely.
6. Replacement Cost Value (RCV) vs. Actual Cash Value (ACV)
This is the amount to replace or fix your home and possessions. Replacement cost value (RCV) is a product at 100 percent, with no use or diminished life span. Actual cash value (ACV) is the use (or life left) of a product after a reduction for depreciation. It’s highly recommended to have full Replacement Cost Value (RCV) coverage on your property. Some policies may include Actual Cash Value (ACV), sometimes called “shared value”. ACV policies typically have lower premiums than RCV policies, because they provide less in compensation when a claim is made. In ACV claims, depreciation plays a major role as an item can lose thousands in value, depending on the condition it was in before the loss.
7. Cosmetic Endorsements
It’s important to review policies for language on “cosmetic exclusions”. This means you won’t receive reimbursement for repairs on something that was extremely damaged, as long as it still functions. When it comes to your home, this can leave you with a major lack of curb appeal if repairs are not covered.
8. Matching Exclusions
Many policies are not specific on “matching”, and because it’s not clear, its open for a lot of interpretation in many states that don’t have statutory law to define that. This means the carrier will not pay to repair or replace undamaged material due to mismatch between undamaged material and new material used to repair or replace damaged material. Restoring the property to the condition it was in before the loss (with a reasonably uniform appearance) is perhaps the most fundamental reason property owners purchase replacement cost insurance. It’s important to ensure you understand your policy lingo.
9. Adequately Assess The Value of Your Home and Possessions
Get an expert evaluation of your property value and belongings so you’re adequately covered. Be sure to account for potential inflation of your property, and possible depreciation of your belongings. Keep an inventory of your equipment, computers, inventory, electronics, furniture, jewelry, art, memorabilia, and other items of value. Save receipts.
About Adjuster Consulting
The expert team at Adjuster Consulting has over 30 years of experience working with insurance carriers, independent adjusting companies, attorneys, construction companies and commercial development companies on a variety of complex claims. Our expertise includes property, liability, agent errors and omissions, bad faith, claims handling, building code research and coverage interpretation.
- Insurance Information Institute: Understanding Your Insurance Deductibles
- Insurance Information Institute: Facts About Flood Insurance
- FEMA: Flood Insurance
- FEMA: Flood Map Service Center
- FEMA: National Flood Insurance Program
- Insurance Information Institute: Earthquake Insurance for Homeowners