I provided an overview of a home insurance policy (see https://wiseinsurancegroup.com/a-texas-home-insurance-overview/) in last week’s post. This week, I’d like to dig deeper into the 4 categories of property coverage which are the home or dwelling coverage, personal property or contents, other or detached structures, and additional or extra living expenses. I used the word “or” in naming each section because home insurance companies use different names to describe each type of coverage.
Dwelling Coverage: This is the amount of insurance on your home. Put another way, this is the limit of coverage on your home, meaning in the event of a total loss, the carrier will pay no more for the home to be demolished (fully or partially), the debris hauled away, and a new home built, unless stated otherwise.
To generate the amount of home insurance required to replace the home, I ask questions about each person’s home I quote including the home’s square footage, number of stories, roof type, exterior wall type, kitchen grade, number and grade of bathrooms, floor covering, and more. The answers to these questions are then entered into each company’s replacement cost system which calculates the amount of coverage they believe is needed. The amount of coverage may the same or different from a home’s purchase price or market value, as well as different from its taxable value.
Other Structures: Texas state insurance law requires home insurance companies set aside a percentage of the dwelling amount for other structures (sometimes referred to as detached or separate structures). Structures that fall into this category include fences, tool or garden sheds, detached garages, swimming pools, cabanas, some decks, and more. These structures are usually permanent, reside in the yard, but are not connected to the main home.
The default amount of coverage ranges from 10% to 20% of the home’s value. The amount of coverage for other structures can be raised, such as in the case of a nice swimming pool, tennis court, or cabana. However, the amount of coverage usually can’t be lowered, even if there are no other structures.
Personal Property: Contents, or personal property or coverage is designed to cover everything you move into the home. This includes furniture, appliances, electronics, clothing, toys, dishes, etc. Every insurance company has a base level of coverage they provide with their policy. A few companies start with an amount of coverage that’s 40% to 50% of the home’s insured value, however most companies provide coverage in the 60% to 70% range. The amount of coverage can be raised if needed, but not lowered.
Additional Living Expenses: Most people cannot afford to pay their mortgage and rent, in the event they had to rent an apartment or home after a major loss such as a fire or tornado. Additional living expenses or loss of use is coverage keeps that from being something to worry about. This coverage can be used to rent a hotel room for a night or several nights, if you experienced a major water leak. In the event of a major fire or damage from a tornado or hurricane, you may need to rent an apartment of house until the damages are repaired or the home is replaced. In many cases, the limit is a dollar amount which may be capped at a year or two depending on the company.
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