Homeowner Insurance Basics

Whether you’re a first time home buyer or you’ve had your house for years, the information in this blog post is designed to give you a better understanding of the coverages contained in a homeowner policy.

There are two sections to a homeowner policy – the property section and the liability section.

The property coverage section is divided into 4 parts. The first part is the dwelling coverage. This is the amount that your house is insured for. You should make sure that the amount listed here is enough to rebuild your house in the event of a total loss. People sometimes ask us if they should insure their house for the market value and the answer to that is no. Market value is affected by things such as the location of your home, the neighborhood, the school district and lot size. You should insure your home for its replacement cost – the amount that it would cost to rebuild your house with like kind and quality. Here on Long Island we can get a rough estimate of this amount by multiplying your home’s square footage by $200 to $250 per square foot. That’s just an estimate for a typical house but the cost per square foot can sometimes be higher than that.

We recommend that you include the dwelling replacement cost endorsement on your policy. If your house is new enough – usually about 40 years old or newer depending on the company, you’ll be able to add this to your policy. The replacement cost endorsement provides extra dwelling coverage (usually 25% more) as a cushion in case your house is under insured.

The second part of the property section is the “other structures” coverage. Other structures refers to items such as a detached garage, a shed or a fence. Anything that is attached to your house is considered part of the house and is covered under the dwelling limit. Most policies provide a coverage limit for other structures that is 10% of the dwelling limit. The third part of the property section is the personal property coverage. The amount listed here should be enough to cover the contents of your home. A standard homeowner policy provides an amount that is 50% of the dwelling coverage however we rarely see that today. Most policies contain a replacement cost on contents endorsement which raises the personal property limit form 50% of the dwelling to 70%. The replacement cost on contents endorsement also allows for losses on your contents to be paid at replacement cost with no adjustment for depreciation.

Items that are not easily replaced or have a high value should be scheduled on your policy. Examples include jewelry, fine arts, furs, musical instruments and antiques to name a few. Scheduling items generates an additional premium and requires a recent appraisal. Once an item is scheduled it is covered at full value anywhere in the world.

The last part of the property section is called loss of use. Loss of use provides coverage for you and members of your household to live elsewhere while your house is being rebuilt or repaired after a covered loss. Most companies provide a limit for this coverage that is 20% of the dwelling limit.
The property section of a homeowner policy is also where the deductible applies. The most common deductibles today are $500 or $1,000 and the higher your deductible the lower your premium. Here on Long Island as well as in other coastal parts of the country most companies require a special hurricane wind deductible. These deductibles are often a percentage of the dwelling amount – usually 5%, and are triggered when wind speeds hit certain levels.

The second part of a homeowner policy is the liability section. Liability insurance provides coverage for the homeowner and members of the household for claims arising out of lawsuits resulting from negligence. Legal defense costs are also included in the liability limit.

The liability section also provides coverage for medical payments. Medical payments is what’s known as a goodwill coverage because, unlike liability insurance, the homeowner does not have to be negligent for damages to be paid.

If you have any questions or would like us to review your policy please feel free to give us a call at 631-758-1550. You can also reach us by e-mail at service@bayharbourgroup.com. We’ll be happy to answer any questions that you have and make sure that your coverage fits your needs.