All policies will include both property insurance (typically with a $250 or higher deductible) and personal liability insurance with no deductible. Let's look at some other issues:
- Other Structures. All homeowner policy forms contain additional protection for separate buildings such as a garage or tool shed on your property. The amount of coverage is equal to 10% of the dwelling value. This amount can be increased if necessary for an additional charge. Coverage is automatic and the basic 10% cannot be eliminated. Be careful here: If you have an office or side business in a separate structure, it will not be covered by your homeowner's insurance.
- Contents Insurance. Each homeowner form automatically covers personal property with a limit equal to 50% of the dwelling coverage. A policy insuring a home for $200,000, for example, typically provides $100,000 in contents coverage. The policy form values your personal property on an actual cash value basis. The insured can add replacement cost protection to this property. One of the more common ways a company charges for this broadened protection is to increase the limit on personal property from 50% of the dwelling to 70%. The amount of coverage you require may vary from the 50% or 70% limit. Speak to your agent. Some insurance companies will allow for limits below 50% if it is warranted by the actual values.
- Additional Living Expense. If you need to move out of your home after a loss resulting from a covered peril your added costs to live away from your damaged property are covered by this section. The traditional coverage is limited to 20% of your dwelling limit. Some companies have opted for a newer method known as actual loss sustained. These policies do not have a specific limit for additional living expense but rather will pay all covered costs for a period of 12 months from the date of loss.
IMPORTANT NOTE: If you are single and buying as live-togethers, be very careful about your insurance. Some companies will cover all owners on one policy, others will not. Most carriers will now cover both parties if they are named on the deed. However, if only one individual is a titled owner of the dwelling, then the other person (non-owner) needs to obtain a tenant's policy to protect their personal property and personal liability.
- Personal Liability. If someone slips and falls on your walk, your personal liability coverage will foot the bill. Coverage for $25,000 is automatically included in all policies, but this limit is far too low to provide any realistic protection. Opt for limits of $300,000 or more. All homeowners should consider obtaining a personal excess umbrella liability policy (See the section Umbrella Policies)
IMPORTANT NOTE: Many states require the purchase of Workers' Compensation insurance for your domestic household workers as part of your homeowner's policy. The rules in each state vary widely, so check with your insurance broker or state employment office to see how this affects you.
- Medical Payments to Others. Whereas the personal liability coverage requires that the Insured be legally liable for a claimant's injuries, there can be instances where someone is injured on your premises and there is no legal obligation on your behalf. (A guest cutting a finger while helping make dinner would be one example where the homeowner is not legally obligated for the injuries.) While not legally obligated for the injuries, the homeowner may still feel a moral obligation to take care of the guest's medical bills. In addition, the insurance companies recognize that, in paying for such expenses, they may prevent a more costly lawsuit from the injured parties. The limit on medical payments to others typically ranges from $1,000 to $5,000 per person.