How much home insurance is enough? Even if your mortgage lender requires a certain amount of coverage, there are many more factors to consider if you want to adequately protect your property, belongings and personal finances against an unexpected loss. In this post, we will reveal the standard coverage types in the two most commonly purchased homeowners policies – the HO-3 and HO-5.
Understanding the HO-3 and HO-5 Insurance Policies
HO-3 and HO-5 are only two of several different forms of home insurance, but they represent the most frequently purchased policies due to their broad coverage. Both include a complete package of coverages, including coverage for your home for all types of risks except for those which are listed as exclusions in the policy. They differ only in how they protect personal belongings, with the HO-5 providing ‘all-risk’ coverage (with exceptions) and the HO-3 limiting coverage for only the perils listed in the policy.
Whether you choose an HO-3 or an HO-5 home insurance policy, the team here at Wheaton Insurance is prepared to help you find the right limits to fit your coverage needs. Your policy will include coverage for your:
This is the first type of coverage listed on your policy and also one of the most important. It is essential for homeowners to select the right limits for their dwelling, not just enough to pay off the mortgage. Instead, coverage should be sufficient to pay for clean-up costs after a disaster, as well as the complete cost to rebuild your home based on current construction prices here in Minnesota. If you are under-insured, you not only risk coming up short on the cost to replace your house, but you could also be subject to the ‘Co-Insurance Rule.’
What is the Co-Insurance Rule?
The Co-Insurance Rule penalizes homeowners for partial losses. How this works is that most policies require that the Coverage A amount on a policy be within 80% of the replacement cost value. If you insure your home for less than 80%, a claim for a partial loss may be reduced by a percentage equal to that which you are underinsured. The bottom line is that you should insure your home for 100% of its replacement cost to ensure you have the funds available to rebuild in the case of a total loss, and you are not short-changed in the case of a partial loss.
Also included in HO-3 and HO-5 home insurance policies is coverage for ‘Other Structures.’ This type of insurance helps pay to repair, replace, or rebuild damaged structures on your property that are not a part of your home’s structure. This could include your fence, barn, stable, shed, carport, pool house, detached garage, or any other independent structure that is not used for business purposes. Limits are typically placed at 10 percent of your Dwelling coverage, although additional coverage is available to those who need it.
It’s what’s on the inside of your house that makes it a home. If you lose all of your personal belongings in a fire or a thief breaks in and steals your valuables, it helps to know you are covered for your loss. In most cases, Personal Belongings coverage is protected with limits between 50 and 80 percent, although that may vary by default from insurer to insurer.
We recommend making a record of your personal belongings and storing it outside of your home, online, or in a mobile app. Then keep up with your home’s inventory, updating it on a regular basis. This helps ensure you maintain adequate coverage for your belongings and also assures that you have easy access to a list of your belongings should you ever need to declare a loss.
Loss of Use
When your home is damaged or destroyed, you’ll need somewhere to stay for a while. Loss of Use coverage takes care of the extra living expenses your family incurs while you are displaced from your home. You can use it to help cover the cost of a hotel for a few nights while your roof is repaired, or even pay for an apartment while your home is being rebuilt. Loss of use coverage is typically included with default limits of 20 percent of your Dwelling coverage.