Proper Coverage Limits

Proper coverage limits safeguard the homeowner from the potential loss of being underinsured. Coverage is the extent of protection that a policy will provide, and the rates paid for this protection are influenced by each hazard covered within the policy. In some instances, insurance is required by mortgage companies, and coverage limits are set by legislation, and in other cases the insurance company itself will determine the minimum amount of compensation for which an insurance policy can be written. This bottom limit may not be adequate, so naturally, the homeowner has the option to purchase as high a level of coverage as he or she thinks necessary for a particular house, and though it would be the proper coverage for this owner, it would not necessarily be appropriate for another.

Homeowners insurance policies may be written in a number of forms, as defined by the Insurance Services Office (ISO), which also sets the standards fort the classification of the various types of coverage available to the homeowner. Typically, for each of the policies, there will be five classifications of coverage. The homeowner, in consultation with his or her insurance agent, will decide which are appropriate and proper.  However, make sure you know what is not covered under a given policy when attempting to analyze your coverage limits.

Classes of Coverage

Property coverage includes protection for the dwelling, that is, the building in which the family resides. This would be the basic coverage, referred to as Coverage A, and which is effectively the foundational coverage by which the amounts of the other coverages will be determined. It does not include the land upon which the property sits, and it also excludes other structures on the property such as swimming pools, sheds, or barns. These last would be covered under the classification Coverage B. Structures covered under the classification Coverage B are limited specifically to structures not used for business purposes.

Generally, under Coverage A, carriers will agree to compensate losses at replacement cost up to the limits of the policy. Homeowners are often advised that a proper coverage limit for the dwelling would be at least eighty percent of its actual value. The limits considered proper for other structures, those covered in Coverage B will usually vary between ten and twenty percent of the value of the dwelling. The homeowner may purchase additional coverage for an "other structure" if it is warranted.

Personal property is addressed under Coverage C, which sets the limits for certain kinds of loss. The extent of this coverage will, in most instances, be estimated at between fifty and seventy percent of the value of the dwelling. Coverage C defines the limits for loss due to burglary, theft, or simple loss and may be negotiable downward depending on the carrier. Those homeowners who require a higher level of coverage may obtain an endorsement.

Coverage D is what is known as loss of use coverage, and compensates the homeowner for the additional expenses that might be incurred if the property were uninhabitable for some period of time due perhaps to a flood, earthquake, or landslide. The cost of renting a temporary residence, and hotel and restaurant expenses are covered. Loss of rental income would also be covered in this clause.

There is an "Additional Coverages" classification which could include reasonable repairs, damage to trees from some named perils, removal of debris, changes required by the fire department, some aspects of identity theft charges, some building additions, and in the case of a furnished rental property, the landlord's furnishing might also be covered.

Premises Liability

It is generally agreed that the proper coverage limits for bodily injury should be at least one hundred percent of the value of the dwelling.