Is Basic Homeowners Insurance Coverage Enough?

Coverage A, B, C and D homeowners insurance provides you with coverage against damage to your property, detached structures and items inside those structures and additional living expenses incurred as a result of having to vacate your home due to damage.

However, each of these policies differ in the kinds of losses they protect you against. For example, all homeowners insurance policies provide automatic coverage against fire or wind damage to your home, but only some policies will cover you against water damage resulting from burst water pipes or overflowing toilets and no policy will provide automatic coverage against flood or earthquake damage, although these can be purchased at additional expense.

Therefore, when deciding to insure your property, it is first necessary to make an assessment of the types of risk you feel that you are exposed to. If these risks are not fully covered by your policy agreement, then it is advisable to take out extended coverage to insure yourself against suffering from a potentially large uninsured financial loss if that is what those risks represent.

To find out more detailed information about the six major coverages that you can insure your home with, please see the articles listed below.

Coverage A (dwelling)
Coverage B (other structures)
Coverage C (personal property)
Coverage D (additional living expenses)
Coverage E (personal liability)
Coverage F (medical payments)

You may also want to view the following videos which discuss what home insurance is, what you do and don’t need coverage for and how to save money on your home insurance.

To learn about the different types of coverages that you can get on your home, see “types of home insurance coverages” in the second half of this article.

Insuring The Gaps

The risks which you are not protected against with your existing insurance policies are known as “gaps” in the insurance business.

If you set up an appointment with your insurance agent or broker and ask to review your existing policies, they will be able to discover such gaps for you and suggest policies which can help you to fill those gaps and thus minimize your risk of suffering from uninsured losses in the future.

In fact, this is something that is recommended that you do every 5-10 years because as you grow older and your financial and personal life changes, so will the types of risks that you are exposed to on a day to day basis.

For example, if you get a new job and your income improves whilst at the same time you start a family, you may decide to move into a larger house and as a result you will require larger limits on your home insurance policy.

You may also require to take out coverage B others structures insurance because you have a greenhouse and swimming pool in your garden. While you are at it, you also decide to get coverage C personal property insurance because you now have more valuable items in your home and your kids running around are making you a little nervous!

But eventually the time comes when your kids grow up and move out, and now the house you have seems far too large for just you and your spouse. As a result, you decide to downsize and move into a smaller property, and when you do, you realize that you need to reassess exactly which of your home insurance policies you still need, and whether you still need them at such high coverage limits.

This brief example could apply to anyone, and demonstrates the ever changing nature of your insurance needs and why it is important to assess those needs on a fairly regular basis. Doing so will help to protect you against suffering from unnecessary uninsured financial risks, and can also help to save you money by allowing you to eliminate policies which you no longer need.

Unfortunately however, most people tend not to review their insurance policies, but rather tend to more or less stick with what they took out when they first started their policy agreement.

Doing so invariably leaves them under-protected, and in many cases, with policies that they don’t need or are receiving no real benefit from. Essentially, they are needlessly wasting money by not reviewing their policies and closing the gaps.

Note: Coverage gaps can be closed by extending existing policies or by taking out gap insurance. Speak to your insurance advisor and ask for their recommendation on what is best for your current situation.

Is Your Home Really Insured?

If you ever need to make a claim on your homeowners insurance policy, the first thing the insurance company does is to look at the type of damage that you are making a claim against, and then whether or not your insurance policy covers such damage.

If you are covered, then your insurance claim will be approved. If you are not covered or partially covered, then your claim will be denied or you will receive only partial compensation leaving you to cover the rest of the expenses by yourself.

This is one of the reasons why closing the gaps, as previously discussed, is so important. As if you are not aware of exactly what risks you are covered against then you may think that you are fully covered, but then later find out during claim time that you are not.

This is definitely not the time to find out that you are uninsured against a particular loss, as it can make it very difficult to recover from, especially if you will require a large sum of money to repair or rebuild your home.

Hurricane Katrina victims provide a vivid example of this very point. Many people thought that when their home was destroyed that they would be covered by their home insurance policy, however, as most soon found out, they were not and had to rebuild their lives by themselves. Unfortunately, because some of these people had little or no savings in the bank, they were left homeless and with nobody to help them.

Types Of Home Insurance Coverages

In general, there are three types of coverage you can get with your homeowners insurance and each of these offers you a different level of protection.

We take a brief look at each of these home insurance policies below:

1 – Basic Policy (HO-A)

Basic homeowners insurance, also called basic form causes of loss or basic form coverage, provides you with the least amount of coverage out of all the three coverage plans. This type of home insurance will insure you against losses resulting from fire, explosion, vehicles, aircraft, volcanic eruption, lighting, wind, vandalism and some forms of theft.

As a basic policy, you are protected against some of the major financial losses that you could potentially suffer from, but it also leaves a lot of gaps in your policy that could still result in some very large financial losses later on.

Due to the inadequate coverage you receive with this policy, you should only get it if your income prevents you from getting something more comprehensive.

Of course, this is still better than having no home insurance, but as you start to earn more money you should look into upgrading this policy as soon as possible to provide your home, your family and your finances with greater protection.

2 – Broad Policy (HO-B)

Broad homeowners insurance, also called broad form causes of loss or broad form coverage, covers 15 listed causes of loss (perils) in addition to those covered by a basic coverage form such as:

• Damage by burglars.
• Falling objects.
• Weight of ice and snow.
• Accidental discharge/overflow of water or steam.
• Damage from artificially generated electric current.
• Sudden/accidental tearing, cracking, burning or budging.

This type of home insurance will protect you against the majority of losses that can occur to your home or home contents. However, if you suffer a loss that is not on the list, then it is likely that your insurer will reject your claim.

But with that said, this policy is still a reasonable policy to have as it protects you against a sizable number of common risks to your property at an affordable price.

As a result, this policy tends to be quite a good choice for middle income families, and should definitely be considered the minimum level of home insurance coverage that you should have on your property.

If you feel that this level of coverage is inadequate for your needs, then you can always upgrade to the next policy to give yourself even greater protection.

3 – Special Policy (HO-C)

Special homeowners insurance, also called special form causes of loss or all perils/open perils, is considered to be the best and most comprehensive form of home insurance that you can buy.

In addition to providing the coverage found with broad form home insurance, it will also provide you with coverage against any accidental cause of loss, unless that loss is specifically excluded from your policy. For example, damage from flooding and earthquakes are not covered automatically under this policy.

Open perils homeowners insurance is recommended over broad form coverage simply because it gives you much greater protection against a wider variety of risks. In fact, the policy gets its name because you receive coverage against all forms of loss, unless they are specifically excluded, rather than being limited to a few listed perils as with the basic and broad form coverages.

For example, special form causes of loss will insure you for losses resulting from interior water damage as a result of a leaking roof or burst water pipes, interior damage as a result of ice or snow, heat damage to kitchen counters and liquid spills on furniture or carpet. None of these are covered under the broad homeowners insurance policy.

Is Basic Form Homeowners Insurance Enough?

It is strongly recommended not to purchase basic homeowners insurance as it does not provide you with sufficient coverage against common risks. The only exception to this is if you can’t afford any other policy.

Broad form causes of loss does protect you against common risks, so this insurance policy can be recommended.

However, to ensure full protection against virtually all forms of loss, special or open perils insurance coverage is the best policy to get. As long as a loss has not been specifically excluded from your insurance policy, you will receive compensation from your insurer when you make a claim.

It is important to note however, that special form coverage is more expensive than broad form coverage. Typically, you can expect to pay about $75 more a year for an open perils homeowners insurance plan.

As a result, your primary aim should be to get a home insurance policy that provides you with a reasonable level of protection and is at a price that you can afford to maintain for the long term. In such circumstances, a broad form causes of loss policy will be the most suitable option for the majority of middle income families.