How to Compare Home Insurance Coverage Side by Side
To compare home insurance coverage side by side, you need:
- Coverage Limits
- Special Sub-Limits
- Special Deductibles
Home insurance policies are dense, often with over 50 pages of legal language. Here are the most critical coverage types you should be comparing in a home insurance quote:
The most significant coverage lines you want to check are:
Your house - Coverage A - Building
Set this limit to enough coverage to rebuild/replace your home if it burns to the ground. It is not the market value of your home, but the cost to rebuild it from the ground up.
Extra buildings/structures - Coverage B - Other structures
For other structures or buildings on your property, but not attached to your primary house structure. Examples would be a gazebo, tool shed, or guest house.
Your belongings - Coverage C - Personal Property
All your worldly possessions: clothes, furniture, fridge, TV, rugs, artwork, etc. There are special sub-limits in Coverage C to pay attention to for categories like jewelry, computers, and bicycles. (see Special Sub-limits below)
Temporary relocation - Coverage D - Loss of Use
If your house becomes uninhabitable due to a peril covered on your policy, Coverage D kicks in to cover your expenses of living somewhere else. For example, if a pipe bursts on the top floor and floods the entirety of the home, making the house unlivable, you would need to live out of a hotel or rental home while repairs took place. The loss of use coverage reimburses you for expenses caused by the original claim event.
Your liability - Coverage E - Personal Liability
In America, we take pride in the right to sue anyone for anything. Josh might be your best friend today, but see what happens when he slips on the ice in your driveway and can't walk for three months. Hopefully, you are never on the receiving end of a lawsuit, but just in case, make sure you have liability coverage to protect your entire net worth. If you have more than $500,000 in net worth, purchase an umbrella policy.
Your health - Coverage F - Medical Payments to Others
If a guest gets injured on your property and incurs medical bills associated with the injury.
How much property coverage does someone need?
Most home insurance policies will offer coverage for personal property at 50% or 70% of the Dwelling Coverage A limit. If your Coverage A is $250,000 in dwelling coverage, then you'll be quoted $75,000 - $125,000 in personal property coverage. Make adjustments to this as you see fit.
If any of your belongings are extremely valuable, such as fine jewelry, collections of art, antiques, coins, or even wine, don't assume these are covered in your Coverage C limit.
The Special Sub-Limits
Each policy has 10-20 special item categories in Coverage C that are capped at a specific limit. A standard homeowners insurance policy has limits on the following categories:
If you have high-value items in any of these categories, you should consider adding an endorsement to your policy that increases your coverage limit. For a high-value item, like an engagement ring, you can also schedule an individual item.
There are many exclusions on a home insurance policy. Some exclusions can't be added and are never really covered:
Some exclusions that CAN be purchased as add-ons to your policy:
Flooding - Flood insurance needs to be purchased as a separate policy. 20% of flood claims come from a medium/low-risk flood zone, so just because you aren't in a high-risk flood zone, doesn't mean you shouldn't consider flood insurance. Check your own flood zone risk in my free risk report. If you need flood insurance, make sure you also evaluate private flood insurance. The cost of flood insurance can vary widely based on your flood risk zone.
Sewer Backup/Sump Pump or Water Backup - If the water backs up in the sink or toilet due to blockage in the piping below, damaging your property, you are out of luck, unless you buy this optional add-on. Expect it to cost ~$10/mo for $10,000 in coverage.
Lateral Lines Coverage or Service Line Coverage - This covers the service lines between the street and your home. Let's say a tree root grows through a sewer line located on the property. You have to dig up the sewer line and replace it at the cost of $6,500. This add-on will cover this type of damage, and it is very affordable at around $3/mo. Lateral lines are not covered by default.
Mold Damage - Usually excluded and can be purchased as an add-on, but very expensive. Mold tends to do a lot of damage if not caught early and remediated as it can get into the structure and foundation of a home. (some states, like NJ, require $10,000 in basic fungi, mold, rot coverage)
Replacement Cost (Your Home) - Some companies will offer a Replacement Cost Coverage for an additional premium. To find out if this is available with your company, ask your insurance agent.
Earthquake Damage - No standard insurance policy includes earthquake coverage. While earthquakes can potentially happen in all 50 states, earthquake coverage becomes far more critical for homeowners in high-risk areas. It's not just California, either. For instance, Oklahoma was experiencing substantial amounts of earthquake activity during 2015, due to either the increase of fracking or hydraulic fracturing.
Home Daycare - A standard home insurance policy doesn't cover home daycare, so you'll need to ask your insurance company if they can include daycare coverage. An obvious risk of daycare would be a child slips and has an accident. Additionally, daycare coverage can protect property used for daycare: such as fire destroying the daycare equipment.
Personal Umbrella - A personal umbrella is a type of insurance policy that includes additional liability coverage. Personal umbrella insurance helps protect your net worth from massive or potentially catastrophic liability claims or judgments.
Scheduled Personal Property - For high-value items such as art, antiques, coin collections, expensive cameras, firearms, furs, jewelry, musical instruments, and stamps.
Identity theft - Identity theft coverage will reimburse the victims for money spent reclaiming financial identities, and repair any credit reports. These endorsements don't pay for direct financial losses, such as money stolen from your bank account.
Home Sharing/AirBnB - Most home insurance policies won't cover any accidents that occur from a short-term stay at your property. Moreover, if your homeowner insurance does include coverage for home-sharing, there still a chance that the insurance company can deny a claim if it was not correctly declared on your application.
Hurricane and storm deductibles
In coastal states like Florida and Texas, special hurricane deductibles can come standard in home insurance policies. Be warned, having a large deductible, and low premium plan can be more affordable upfront by quite expensive when disaster strikes. Hurricane deductibles are usually quoted at a percentage of your Coverage A. If your Coverage A is $300,000 and your Hurricane Deductible is 2%, that means in a hurricane claim, you are paying $6,000 out of pocket. ($300,000 * 0.02 = $6,000)
Wind and hail deductibles
Similar to the hurricane deductible, the wind/hail deductible can equal a percentage of Coverage A, rather than a set dollar amount. You can expect to find these deductibles in places like Texas, Colorado, Kansas, Nebraska, and Oklahoma.
How should someone choose their deductibles?
Most claims get paid under the same deductible, which is usually known as the all other perils (AOP) deductible. The AOP deductible comes into effect if a specific deductible is not stated. The AOP deductible applies to a wide range of perils such as a tornado, house fire, burst pipes, and property theft. In each claim, you will pay the same fixed out-of-pocket amount, and your coverage will deal with the rest (up to your limit).
Let's say you choose to increase your deductible from $1,000 to $1,500. In a claims situation, this means you'll have to pay an extra $500 out of your pocket, which isn't great. However, that's not the full picture.
Increasing your deductible will cause your monthly premium plan to go down by as much as 25 percent, making it a smart way to save money on your annual home insurance bill. A higher deductible also encourages you to avoid filing minor claims. As claims stay on your record for five years, you will likely just pay it back in higher premiums in the future, so it is to your benefit not to file small claims. A higher deductible is a smart way to have your insurance track record stay clean and even help you for qualifying for exciting and helpful discounts.
Just remember that merely deciding on lowering your premium by increasing your deductible can be narrow-minded, especially if this leaves you open for financial problems in the future.
Let's say you decide on a $500 deductible. A low deductible can be a prudent decision to make. While your premiums will be a bit higher today, you avoid a more significant hit to your savings if something terrible does occur in the future. If you are on a tighter budget month to month, this may be more financially prudent.
If you live in an area where you know you will likely need to file a home insurance claim sometime in the next five years, why not pay an extra $5/mo today to save $500 on your deductible in the future. Additionally, you get the comfort of knowing your homeowners coverage is going to be handling the majority of the cost in a future loss.
If you are risk-averse or expect to deal with claims in the future, going with a lower deductible could be the path more suited for dealing with life's unexpected events.
As you can see above, there are many ways for an insurance company to reduce coverage to show a lower price. Certain coverage adjustments may not even be suited for your home or its location. Always make sure the insurance company choose for home insurance coverage is reliable and has a positive reputation with its customers.
Your home insurance coverage should be able to help deal with significant unforeseen and sudden damages that occur at your property, but not all. If you live in Florida, focusing on your hurricane and storm coverage would be wise, but if you live in Colorado, you may want to focus more on wind and hail damage. Every region is different, and home insurance coverage types can change from state to state.
The real question you need to ask: what is the value of the coverage I am buying? In the words of famed investor Warren Buffet: "Price is what you pay, but value is what you get."
Dealing with home insurance can be challenging to tackle alone, as a lot of customization is available. It requires you to be diligent and look carefully at all the coverage types, or work with a home insurance expert like Young Alfred. Young Alfred gives you an accurate and easy side by side comparison of coverage for free.
At your service,