Supplemental Homeowners Insurance

A basic homeowners insurance policy may be fine for minimizing common risks associated with home ownership; however, there are many possible losses that do not fall under the protection of the standard homeowners policy. 

It is estimated that as many as 66% of American homeowners are underinsured by an average of 18%.  Despite the added cost, supplemental insurance coverage can help fill the gaps in areas where homeowners are underinsured.

For acts of nature that are not covered under a standard homeowners policy, supplemental insurance riders can be purchased for flood, earthquake, landslides and even expansive soils.  The cost of these riders varies depending on the potential risk present in the area.  Local and national government agencies can provide consumers with risk assessments, particularly, the Federal Emergency Management Agency (FEMA).

The basic homeowners policy will set limits based upon either an actual cash value (ACV) or replacement cost (RC).  Often times, basic coverage may not fully cover all costs associated with a total home rebuild.  Extended or guaranteed replacement cost coverage will pay beyond the basic policy limits.  Extended replacement cost generally pays an extra 20% or more above basic dwelling limits, where guaranteed replacement cost will pay whatever it takes to bring the home back to where it was before the loss.  

The loss of personal property (personal possessions and valuables) can be costly both emotionally and financially.  Though there is no insurance available for the emotional loss, personal possessions and valuables can be further protected by special endorsements, called scheduled personal property coverage (SPP).  While most basic homeowners policies contain a personal property provision, they also have limits that might not fully cover items like expensive jewelry, art or coin collections. 

An SPP provides actual cash value replacement based on appraisals and there is typically no deductible.  An SPP can even cover items stored off-site, such as in a bank safe deposit box.  This type of endorsement costs more than just raising your personal property limit.  However, it provides much broader protection for losses such as losing a ring down a drain or leaving valuables in a hotel room, neither of which can be claimed through the typical personal property provision.

An area of coverage that often goes overlooked is building code upgrade coverage, which can come in either flat rate or percentage form.  This coverage is needed when a home must be repaired or rebuilt and brought up to modern-day code standards.  This could be very expensive depending on the code changes and the age of the home.  

One of the newer forms of supplemental insurance coverage involves identity theft protection.  This coverage pays for expenses related to resolving credit disputes caused by the theft of personal information, such as a social security number or credit card number.  Some insurers even provide fraud specialists to help restore a homeowner’s credit.

Supplemental homeowners insurances does raise the cost of average premiums.  Like all insurance, it is necessary to balance the risks against the costs.  These are issues that should be at least be addressed with an insurance agent to determine whether or not the coverage is warranted. 

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