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How Much Coverage?


Property Coverage


Coverage for the property portion of the homeowners’ policy includes three parts that are often distinguished by the letters A, B, and C: Coverage A for the dwelling, Coverage B for the other structures, and Coverage C for personal property. A fourth type of coverage—sometimes termed Coverage D—compensates you in case you are forced to live elsewhere while your home is being repaired or rebuilt. All property coverage includes deductibles— the amount that you must pay before the insurance company pays the balance. A common deductible is $250.

Coverage A: The dwelling is usually based on the cost of replacing the house, subject to a maximum dollar amount. Minnesota law prohibits an insurance company from knowingly insuring a home for more than its replacement value. Typically, the minimum coverage is 80 percent of the replacement value of the house. A home with a replacement value of $120,000, for example, would typically be insured for $96,000.

Because of inflation, increases in construction costs, and other changes that cause the value of your property to go up, you may consider  including an inflation guard clause in your policy. This automatically adjusts the amount of your coverage to reflect an increase in value. Not all companies offer this option.

Coverage B: The other structures on the property, is determined by the amount of Coverage A. The standard coverage limit is 10 per- cent of Coverage A, although this can be increased at your request. In the case of the example used above, the standard coverage would be limited to $9,600.

Coverage C: Personal property, compensates you for damage to or loss of your personal property, and is usually subject to a limit of 50 percent of Coverage A. In the example used, this limit would be $48,000. Many homeowners increase this coverage limit to 70 or 75 percent, but most policies set individual limits on certain types of property such as money, securities, jewelry, and watercraft. Check these limits; if you have some highly valuable possessions that would not be adequately covered under these limits, you might want to consider buying a special personal property endorsement or “floater” that would insure these items separately.

As noted in the opening paragraph of this guide, providing replacement cost coverage for personal property is an important feature, since policies that compensate based on Actual Cash Value are likely to prove inadequate. If the company’s policy does not provide for replacement cost of personal property, Minnesota law requires the company to state this on the policy declarations page.

Minnesota law stipulates that if an insurance company limits Coverage B and C to a percentage of the dwelling (Coverage A) limit, it must also offer an option allowing policyholders to purchase lower or higher percentage limits; the company must also provide a rate credit for lower-than-standard limits.

Coverage D: Loss of dwelling use, pays additional living expenses if you are forced to live elsewhere while your home is being repaired or until you can move into a new dwelling. The amount of coverage is based on actual living expenses required to maintain your normal standard of living, or on the fair rental value of your dwelling, less any expenses that do not continue while the home is repaired. Payment is for the time it takes for the home to be repaired or for you to relocate.

Liability coverage: The second major part of your home insurance policy. The standard amount of liability coverage is $100,000, but this periodically increases. If you have a lot of assets to protect, you may want to buy a personal liability umbrella policy.

Umbrella policy: This type of policy provides additional liability coverage and is applied after the liability coverage on your homeowner policy runs out. Besides providing additional monetary coverage, it also expands coverage to include personal injury.

The standard homeowner policy covers bodily injury and property damage, with personal injury offered as an option. (Personal injury includes such actions as false arrest, defamation, and invasion of privacy.)