Homeowner’s and Renter’s Insurance Basics
How much is enough?
Many people don’t want to put a lot of thought into their renter’s or homeowner’s insurance policy. They buy a renter’s policy because the building they live in makes them do so. When they close on a home, they will buy a homeowner’s policy because their lender requires it.
These insurance policies are much more important than you may think at first glance. When it comes time to make a claim, many people find out just how critical their coverages are. They cover more than just the value of your home and your contents; they also include liability coverage which can come into play if someone gets injured on your property.
These policies are important for everyone, especially when looking at it from a retirement point of view. Having the right coverages will serve as a protection for your hard earning savings and retirement assets.
Renter’s Policies
A renter’s policy covers your belongings from any peril not excluded in the policy. This can include fire, theft, smoke, and so on.
Your possessions are covered in one of two ways:
- A less expensive policy covers your belongings on a depreciated value basis. This means if you have a 10-year-old TV it will only be covered for how much it is worth today (which likely isn’t a whole lot).
- For a little bit more, you can have a policy that covers your items on a replacement cost basis. This means that if your 10-year-old TV is damaged or destroyed in a fire it will be covered based on how much it would cost to replace. If you have an older 43″ TV you’ll get enough money to buy a new 43″ TV.
Nevertheless, for either type of policy, there will still be a deductible, which, for most is in the $250 or $500 range.
These policies are relatively inexpensive. In Pennsylvania, the average renter’s policy is around $200 a year. The cost may be higher or lower depending on how much personal property you need to insure, how much liability coverage you want, and what deductible you choose.
Homeowner’s Policies
A family can have thousands to hundreds of thousands of dollars invested in their homes. To have all that wiped away in an uninsured fire would be devastating to any family’s finances. A family risks ruin by not having their homes properly insured, making homeowner’s insurance far more important than just something to check off when you buy a home.
A homeowner’s insurance policy provides protection in a variety of ways and there are many different types to choose from.
The broadest type of homeowner’s insurance policy is called a HO-5. This is a comprehensive policy that covers any sort of peril, unless it is specifically excluded by the policy. Many homeowners are unaware that events such as earthquakes and flooding are not covered under home insurance policies. These perils can only be covered with the purchase of separate policies.
Each policy is broken down into different sectors of coverage: A, B, C, D, E and F.
- Coverage A is the portion of insurance that covers the actual structure of your home.
- Coverage B if for separate structures on your property (sheds, fences, etc.).
- Coverage C is your personal property.
- Coverage D is loss of use of your home. For example, if you need to live in a hotel for some time while your home is being repaired after suffering a covered peril, the loss of use coverage will reimburse your expenses.
- Coverage E is your liability coverage, such as if a suit is bought against you if someone were to be injured on your property.
- Coverage F is for medical payments for injuries to others that are not insured by your policy.
It can all sound very confusing at times, but don’t let that deter you from learning more about your policy and its coverages. Having the knowledge to make decisions now, while you still can, is a priceless asset.
How Much Liability Coverage Is Right For You?
Usually, the default amount of liability coverage on a renter’s or homeowner’s policy is $100,000; which, as I’m sure you know, is most likely not enough for the average family. You can add a lot of peace of mind by bumping this coverage up and it really doesn’t cost very much to do so.
The next step up is $300,000. It depends on where you live and your carrier, but it can be as little as $20 a year to boost your liability to $300,000. As such, it may be worth checking into the cost of increasing this coverage to $500,000 or even $1,000,000, especially if you are nearing retirement. If you do not have enough coverage, your nest egg could be instantly depleted in a potential lawsuit or incident.
You can also consider getting an umbrella policy. These provide an additional $1,000,000 in liability coverage on top of your other policies whether it’s auto, boat, renter’s, homeowner’s, and so on. The price of an umbrella policy will vary widely based on the family circumstances, but it could be worth finding out the price to have the additional protection.
Circumstances are always changing. Make sure your policies are staying in sync with your situation by reviewing your coverages when they renew each year.
So, how much coverage is enough? Ultimately, it comes down to what will help you sleep soundly at night.