Today, I want to talk about homeowner’s insurance, the coverages of it, where to get it, what’s included and what’s not.
Now for most people, their home is the largest asset they have. You know, they may have a lot of money tied up in investments and stuff like that, but comparatively for most people, their single most asset is their personal residence. Imagine what would happen to it. If you lost your home in either a fire or a storm or some other event, that’d be traumatic.
I can’t imagine the idea of having your house and all the possessions inside of it burned down. That’d be very, very traumatic experience. And not to mention it’d be financially disruptive. Right. Imagine the idea of having to pay to rebuild your home. And so that is why, again, we have insurance as one of our two rails on the path to financial success, insurance helps protect.
So, when it comes to homeowners’ insurance, there’s a couple of things in which a company won’t protect against, right? There are certain exclusions or events that if they were to occur, the homeowner’s insurance would not cover it. The first one. Is that a flood, right? So, no homeowner’s insurance will cover flood insurance.
You must get flood separately in things like acts of war or God forbid, nuclear events insurance companies will not protect your home if one of those events occur. There are also some things like natural events though, with like earthquakes or hail or wind that sometimes are included and sometimes not.
It’ll depend on your specific policy and generally the area of the country that you live in. Now, when it comes to a homeowner’s insurance policy, there’s generally six. different aspects of coverage that we’ll unpack in general. But the first thing is, as you’re looking at your homeowner insurance, you want to know what the deductible is.
What is the amount of money that you will pay out before any claim is settled by the insurance company? Normally that’s about 1 percent of the dwelling coverage. So, whatever your house is worth, normally it’s about 1%. My specific homeowner’s policy has a deductible separate for hurricanes, right? Cause in the state of Florida, hurricanes are common, you know, annually, generally.
For a normal claim, it’s 1 percent of the home value. But in the case of a hurricane, it would be 2%. And so again, you would want to look to see what your deductible is on your policy.
Now, when it comes to coverages, there’s generally two sections, section one, and section two. And there’s a couple of different coverages within those sections and they’re labeled.
A, B, C, D, E, and F, right?
Part A
So, a normal homeowner’s policy is normalized to the point where the coverage. Aspects of the same. The only changes are the amounts thereof. So, coverage section one, part a, what that cover is dwelling. And this by far is the most important number on your policy. This is the maximum amount the insurance company would pay in event of a total loss.
Normally it’s going to be the rebuild cost or the fair market value costs of your home. Now, one of the general problems that people have with this is they buy their home. And if you live in it for 20, 30 years. When you buy the home, you get full coverage. Well, over time, housing costs go up, rebuild costs go up, labor goes up, materials go up, and so it’s very possible for someone who’s been in their home for 10, 15, 20 years to be very underinsured in this area.
And the problem with that is if your house were to burn down, the insurance company will only pay that amount. And if it costs more to rebuild your home, you’re going to have to pay the rest. One of the riders that you can get added to this coverage is a guaranteed replacement, a guaranteed replacement rider will.
Basically, say no matter what it costs to rebuild your home year over year over year, the insurance company will pay it. So that is a great thing to investigate. You always want to make sure no matter what, that this number is at least 80 percent of the rebuild costs of the farm market value balance because anything below that the insurance company will start to even on not total loss claims, but partial loss claims.
They will not pay out the total amount of the loss. They will prorate it based upon the amount of coverage you have. So that is by far the most important number on the entire policy.
Part B
Part B then covers other structures. So dwelling is your actual home. Things are attached to your home to include like cabinets, attached garage.
Lanai’s, things like that. Other structures, then, are not attached to your home. These would be like fences, sheds, detached garages. Things like that. Other things on your property, structures, but are not attached to the home. Generally, this Would be a certain percentage, right?
So, if your dwelling is maybe 300, 000, this section might be 10 percent of that. So 30, 000. So again, it depends on your coverage. If you just have a simple fence, 30, 000 would cover it.
But if you have an elaborate, you know, two, three story detached garage with a lot of elements to it bathroom, sink, stuff like that, that may not be enough coverage for that.
I see you, my one eight. Increase that aspect of it.
Part C
Part C is personal property. So, a and B cover structures only, but not the content inside. Part C personal property covers the content. So, the couches, the TV, the computer, the clothes, the furniture, the equipment, things that are inside of your home. And again, this, a lot of times in some policies is a percentage, 10 to 20 percent of the dwelling coverage.
Other times it’s a certain amount, 50, 000, a hundred thousand. Generally, 50, 000 is enough. If you have a lot of expensive stuff inside of it, then obviously you would get more, but personal property, this covers the contents inside of your home.
Part D
Part D then would wrap up section one.
So, if something were to happen to your home due to a fire due to an event due to a storm and you cannot stay there and you must go stay somewhere else, an Airbnb, a hotel, things like that then. This part of the insurance would cover the loss of use where you must pay to stay somewhere else.
And so, a lot of times people go to hotels. This would help get reimbursed for the coverage of those stays.
Section two then has two primary coverages in it. The first one is personal liability. So personal liability is the idea that somebody is on your property in your home. and they get hurt primarily due to your negligence, right?
Part E
So, the classic thing is if you’re up North ice on the steps or ice on the walkway where, you know, you could have done some things to remove the ice or melt the ice and you didn’t, and they slip and fall and they have a lot of injuries. You would be personally liable for that. Now someone’s trespassing on your property.
Obviously, they’re breaking the law. You’re not responsible for the damages to them. If you have a wire that’s hanging out, you know, because you’re doing some remodeling and somebody touches it and gets electrocuted, that would be, you know, negligence on your part. And so, this would cover personal liability of events that take place on your home, primarily due to negligence.
Part F
The last section is that of. medical payments to others. So again, similar, but slightly different. So, this is your neighbor came over and he was walking down the steps, and he twisted his ankle and he fell. You’re not liable for his damages. You didn’t do anything negligent. You’re not liable, but just to be a good neighbor, you could use your homeowners to pay for the medical damages that he might ensue.
And so normally this is about 5, 000, a very small amount. Your personal property, you’d want a hundred at least 300, 000 generally for that. But medical is a very, very small amount.
Renters Insurance
Now, if you don’t own a home, you want to, and you rent somewhere, you want to have. So, renters’ insurance will generally not cover the dwelling because you don’t own the dwelling, not cover the structure because you don’t own the other structures on the property.
But you want to have two aspects for sure of homeowners. One is personal property. Your landlord cannot protect your personal properties and not have an insurable interest. So, if something happens to them. and it burns down. His personal property cannot cover your goods because, it’s not his stuff.
He can’t have a policy to ensure your stuff. So, you want to have a policy to ensure that your personal property is covered. And the other one is liability. So again, if something happens, In the place that you’re renting, that’s due to your fault, your negligence, that you’re liable for, you want to ensure that you have liability.
Again, 300, 000 is generally enough for that.
Where to Buy It
So where to get homeowners insurance? A couple places. The first one is directly from an insurance company. So, you can go straight to a company, you know, Allstate, Nationwide, things like that. Personally, I have USAA. So that you can go straightly to them, and you can get it there.
But they will only sell you. You know, policies for that company. So, I can’t go to USAA and USA is not going to help me get a policy from nationwide or all state. They’re only going to give me a USA policy. Same thing. If I go to a state farm rep, they’re only going to give me that. We call them captive agents or general agents.
The other place to look. Is that of an insurance broker and insurance broker will shop amongst many companies and help you find the best coverage for your needs and give you the best price on it. So those would be more independent local brokers that are shopping on your behalf. Obviously, they get a cut and a commission that comes out of the policy.
You don’t pay any extra for that, but they help you get a better deal and look wider. But the limitation there is they can’t sell you, you know, a. State farm policy and all state policy or USA policy because they’re not appointed with those different companies.
So, there’s pros and cons there. If you have a company you like, then obviously you can utilize them, but a lot of times those are more expensive. So, it’s always a pain when you must get new insurance, but those would be the two places to look, you know, direct to a handful of companies to get some options and go to a broker as well and just shop it around.
MircroAction
Your micro action for the week:
Is to find your homeowner’s insurance policy. Generally, you can find it as a login page of your insurance company. Go in there and look through those companies. You’ll see it just like this example here of A, B, C, D, E, and F. Look at your coverages and ensure that you have the right number of coverages.
And if not, maybe make an appointment with your agent to talk about increasing it.
So today we talked about homeowner insurance, the coverages of it, where to get it, why it’s important.
I hope this helps you on your financial journey. If you have any questions or comments, you can leave them below. You can additionally send an email to Mike@truewealth.show.
And until next time, I hope you have a great day.
