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What Does Home Insurance Cover
Aside from homeowners insurance being required by most mortgages, home insurance is a smart idea for a number of reasons, and it might cover more than you think.
-Dwelling: The home itself. The vast majority of homeowners insurance policies for your primary residence will cover the home for "Open Perils"; this means that unless a peril (cause of loss) is specifically excluded in the policy, it's covered. Insurance companies each have their own calculator to determine the amount of money it would take to rebuild your home the way it was before the loss. Then it is typical for the company to insure your home for 125% or 150% of this number. This way your home gets rebuilt even if labor and materials are in higher demand after a loss.
-Other Structures: You may be surprised to see this coverage if you don't have any "other structures". This coverage is included with the policy at no additional cost. It is typically a derivative of the dwelling coverage amount (usually 10%). It covers things like statues, fences, fountains, gazebos, coy ponds, etc. -Anything that is not attached to the home.
-Personal Property: All of your belongings. If you were to take the roof off the home and tip it upside down, this coverage is for everything that would fall out. You may be surprised at the amount of coverage that comes with your policy; this coverage, again, is a derivative of the dwelling coverage (usually 50% or 70%) included at no extra charge. Personal property is typically covered for "Named Peril", meaning unless it is specifically covered, it is excluded. When talking about named perils coverage, most policies mean: fire, wind, hail, damage from aircraft, riot, damage by vehicle, explosion, smoke, or vandalism. If you wish for personal property to be covered as "Open Peril" be sure to ask your agent!
-Loss of Use: If your home is unusable due to a covered claim, this is money for you to make alternate living arrangements while your home is being reconstructed. This coverage is also included at no charge, and it is also a derivative of the dwelling coverage (usually 30%).
-Personal Liability: Arguably as important as the coverage for the home itself is personal liability insurance. This coverage is to protect you against lawsuit arising out of bodily injury or property damage others claim you caused them. This coverage does not apply to liability arising from business ventures or auto accidents (that is what auto insurance and business insurance is for), but you can get a little creative as it protects you in most other situations. If someone slips on your sidewalk, if you spill your wine on a Norman Rockwell at a gallery, if your teenagers throw a party at your home while you are away, or your dog bites a stranger at the park, this coverage pays your legal fees and settlements. Almost all home insurance comes with a minimum of $100,000 for personal liability, but it usually does not cost much more for $500,000 which is our recommendation. If you believe you need more coverage, umbrella policies are the next step.
-Medical Payments: This is no-fault coverage. The premise behind this coverage is that if a guest is hurt on your property, you would have a smaller amount of money to pay for their Dr visit (copays, coinsurance, etc.) If they need more money than this, they would need to prove that you were "negligent" in your actions which resulted in their injury. They would then have access to your personal liability coverage.
What is Commonly Not Covered
Many Homeowners Insurance contracts afford coverage for "open perils". Open perils means that unless it is explicitly excluded, it is covered. This is as opposed to "named perils" which means that unless the policy explicitly states the peril is covered, it is excluded. You should always read your policy conditions, definitions and exclusions to make sure you understand what you have. However, for most of you, we will be dealing with "open perils" and what is commonly excluded. There are a few common ones:
Flood- Defined as two acres or more of normally dry land inundated with water or mudflow. In other words, water coming from outside into your home. Flood is covered by flood insurance which is regulated and offered primarily through FEMA's NFIP or National Flood Insurance Program. Many of our insurance companies offer flood insurance. All companies will have the same pricing and policy language as regulated via the NFIP, but many home insurance companies want you to have your NFIP flood insurance with them, so they can monitor all claims and damage to the home.
Earthquake- Earthquake insurance is typically excluded unless added via endorsement for an extra charge. Coverage is usually matched to the other covered perils on the policy, but will have a seperate deductible. This means that your home will be repaired or replaced using the same reconstruction dollar limit and materials that would have been used had (a fire, for example) destroyed the property. The deductible will usually be different from your "all peril" and "wind/hail" deductibles, typically 5% or 10% of the reconstruction cost. (Example: Your home's reconstruction cost is figured to be $300,000, you have a 10% earthquake deductible, you would be responsible for $30,000 of the loss). This can be a very heavy loss, however 10% is better than 100% for a loss that is typically not covered at all, is unlikely in KS, MO, and CO where we operate, and the endorsement is usually very affordable to add to the policy.
Slow and Prolonged Damage
Insurance typically covers "sudden and accidental" damage. Most claims require a date of loss. Things like cracks in the foundation (resulting from improper diversion of water from the home), termites, mold, rot, etc. are not usually covered as they are usually avoidable. In general, you have a duty to prevent damage. If you have a leak from the ceiling, perhaps covered by a covered peril, but neglect the leak resulting in further damage, you may find the whole thing to be not covered.
Utility Pipes Leading Away From the Home (A few companies now offering via endorsement for additional premium)
Example, the main water and sewer lines that go from your home to the public municipal network. This is a tough one, as it seems it would be part of your home. If it bursts, you will be the one financially responsible to repair or replace the pipe. This is a common grievance with all home insurance policies, however, most water utilities will offer a warranty on these pipes that you can buy directly from them. Contact your local water supplier to see if this is an available option for you.
Terrorism and War
These are your civic duties to self-insure against. Hopefully they never happen!