Optional Homeowners Insurance Coverage: Do You Need It?

Does a standard homeowners insurance policy provide you with adequate coverage, or do you need optional homeowners insurance coverage? If you’re looking for an answer to this question, you’ve come to the right place!

For many people, their home is their largest asset. And although a standard homeowners insurance policy provides basic coverage for your home and possessions, it might have gaps in the insurance coverage you need.

However, considering that homeowners insurance premiums have increased by about 47% in the last decade, you need to feel confident that the gaps are worth filling. So before you spend more money on insurance, you should understand what coverage you currently have and if you need optional coverage.

Read on to learn what coverage a standard homeowners insurance policy offers and what optional coverage is generally available to homeowners.

Visual representation of insurance protecting home

Standard Homeowners Insurance Coverage

The most common homeowners insurance policy is an HO-3 policy (also called “special form”). It generally covers damage to your home from any cause or event except those specifically excluded. As far as your possessions are concerned, it only covers events listed in your policy. Most HO-3 policies offer six primary coverage types:

  1. Dwelling – Your home and attached structures. It typically covers the cost of rebuilding your home.

  2. Other structures – Stand-alone structures on your property. Coverage is typically limited to 10% of your dwelling limit.

  3. Personal property – Repair or replacement cost of items that are stolen or damaged in a covered event. Coverage is typically between 50% and 70% of your dwelling limit. Note that certain items are subject to “special limits of liability” or sub-limits unless you increase those limits.

  4. Loss of use – Mainly covers additional living expenses if your home is uninhabitable after a covered event. Coverage is typically limited to between 10% and 20% of your dwelling limit.

  5. Personal liability – When a claim is made against you for damages because you injured someone or caused property damage, unintentionally or through negligence. You can decide on the coverage amount, but it’s usually between $100,000 and $500,000.

  6. Medical payments – Medical expenses incurred by someone who suffered injuries on your property, subject to certain exceptions.
Conceptual image of insurance and safety

Events Typically Covered by a Standard Homeowners Insurance Policy

Some of the most common causes and events typically covered by a standard homeowners insurance policy include:

Events Typically Excluded From a Standard Homeowners Insurance Policy

Causes and events that are typically not covered by a standard homeowners insurance policy include: 

  • Earth movement – earthquake, landslide, mudslide, mudflow, and sinkhole.
  • Water damage – flood and water below the surface of the ground.
  • Neglect – failure to use all reasonable means to save and preserve your property at and after the time of a loss.
  • War – undeclared war, civil war, insurrection, rebellion or revolution.
  • Intentional loss
  • Government action

Optional Homeowners Insurance Coverage

Woman holding model of house

Homeowners insurance companies typically offer many optional coverages to fit your needs. It includes: 

Flood Damage Insurance – There are flood-specific insurance policies available on the market. The National Flood Insurance Program (NFIP) is managed by FEMA and is delivered to the public by a network of more than 50 insurance companies and the NFIP Direct.

Identity Theft – You can get an endorsement to your homeowners insurance policy to cover you against an imposter using your personal information to impersonate you.

Water Backup – A useful endorsement that provides coverage for sewage or water backups and sump pump overflows.

Equipment Breakdowns – For appliances, such as your dishwasher and stove, and mechanical systems if they get damaged because of an electrical or mechanical failure. Note that breakdowns caused by wear and tear, poor maintenance, and manufacturing defects are typically not covered.

Service Line Protection – Some insurance companies can add a service line endorsement to your policy covering damage to utility and service lines that connect your home to the utilities main lines (gas, sewer, water).

Scheduled Personal Property – Increase the standard coverage limits on specific, high-value items such as jewelry, art, antiques, musical instruments, firearms and sports equipment.

Green Home – Covers the additional cost of replacing damaged or destroyed items with more sustainable, energy-efficient items after a loss caused by a covered event.

Guaranteed Replacement Cost – A few homeowners insurance companies also offer this option. This option provide you with a guarantee to get your home rebuilt to a pre-loss condition no matter what is the coverage the insurance company imposed on you at the time you purchased your policy.

Additional or Extended Replacement Cost Protection – Provides additional coverage to help repair or rebuild your home. It can be useful if the dwelling coverage on your home is not enough to repair or rebuild it after a covered loss. It typically happens due to unexpected increases in construction, material, and labor costs after a major disaster.

Earth Movement – Some homeowners insurance companies offer an endorsement to your policy covering earthquakes, landslides, mudslides, and sinkholes. (Refer to the California Department of Insurance for more information on earthquake insurance in California)

Building Code Upgrades – This will benefit you if your home is partially or totally destroyed due to a covered event. A building code upgrade endorsement will pay some of the extra cost to rebuild your home based on current building codes.

That's a Wrap

We trust that after reading this article, you will have a better understanding of whether or not you need optional homeowners insurance coverage.

Note: We suggest you also read our article on how to avoid being underinsured. Even if you don’t need optional homeowners insurance coverage, it can help ensure you have sufficient coverage on your standard homeowners insurance policy.

Homeowners insurance can be complicated. Making sure you understand your insurance policy and have the right coverage is the first step. However, that doesn’t necessarily mean that if you have to file a claim for a covered event you’ll receive a fair settlement offer.

If you have a large or complex claim, hiring a public adjuster to act in your best interests is a smart move. A public adjuster can help you overcome the challenges of managing your homeowners insurance claim. And can assist you in getting the best possible settlement offer you’re entitled to.

Avner Gat, Inc. has 17+ years of experience as a public adjuster in Los Angeles, covering Southern California. We protect homeowners from the games and fine print that insurance companies are known for.

Call us at (818) 917-5256 to find out how we can assist you.

 

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