A Guide To Property Insurance

Consumer guide to different types of property insurance and advice on how to choose the right policy and coverage for you.

Property insurance is one of four types of coverage under a homeowners' insurance policy. Many businesses, renters and mortgage holders have this type of insurance for their dwellings and personal property. Personal liability, medical payments and additional living expenses are the other three types of available coverage. Dwelling and personal property coverage pays for damages to the structure of a home and accessory buildings located on the property (usually 10% of dwelling value) such as a garage or garden shed, as well as for any damage to personal property you own.

Insurance companies offer different types of coverage and costs vary, so it pays to shop around. To find the coverage and policy that best fits your needs, compare policies using the same deductible and coverage. Insurance companies also offer discounts for installing safety protection devices (smoke or burglar alarms) or having multiple policies with the same insurer.

Try to avoid what is called a named perils (a peril is an accident or event) policy because anything that falls outside of what is named in the policy is not covered. Ask for a policy that covers damage caused by anything except what is specifically excluded. It is important that you are not underinsured and to review your policy every one to two years, especially after remodeling, making a major purchase, or starting a business from home. Consider a separate business insurance policy for a home based business because most homeowners' policies have set limits on payouts for damages.



Dwellings

Guaranteed-replacement-cost coverage, which was once the norm, is no longer offered by many insurance companies. Although it is difficult, it is not impossible to find an insurance company that offers it. With this type of coverage, once the deductible has been met, the insurance company pays for rebuilding a home at replacement value, not market value. Today, most insurance companies offer extended-replacement cost coverage, which limits the amount an insurer pays to rebuild a home, typically 120% to 125% of the insured value.

For example, if a home is insured for $100,000 but costs $130,000 to rebuild, once the deductible has been met, if costs have exceeded the 20 to 25% cushion, any additional costs are the responsibility of the homeowner. It is a good idea to give the insurance company an estimate every year of how much your home would cost to rebuild based on inflation costs, or if there have been home improvements such as a new kitchen, bathroom, or landscaping.

Floods are always an excluded peril. Flood insurance is available only from the federal government's National Flood Insurance Program. Other perils that are typically excluded are power failures, sewer and water damage, and earthquakes; however, coverage may be available if you ask for it.

Personal Property

Clothing, furnishings, and personal belongings are considered personal property and are typically insured at 50% of the value of the dwelling. Trees, shrubs and flowers that are part of your landscaping are also considered personal property but are insured up to a specific value, not as a percentage of dwelling value. For personal property losses, the insurance company pays what is called actual cash value, which is the original purchase price minus depreciation, unless the policy specifies replacement cost. Personal property insurance also covers damage or loss when you are away from home.

A detailed written inventory of your belongings accompanied by photographs or video footage, and receipts, is useful for calculating how much your personal belongings are worth and determining the amount of coverage needed. Property such as art, jewelry, furs, coins, or silverware that would cost above and beyond the standard replacement value stated in your policy requires a rider or endorsement. A rider lists each item with a description and replacement cost based on a bill of sale or official appraised value, and excluded perils.

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