Home Insurance Daily Journal

Just as there are different home styles, insurers offer a menu of different policies. For the majority of single-family homeowners, the most appropriate policy is the HO-3, sometimes called the special policy (in Texas, for some reason, it’s known as the HO-B). It insures all major perils, except flood, earthquake, war, and nuclear accident.

You’ll need deep coverage, up to and including 100 percent of your home’s replacement cost. By insuring at, say, 90 percent, you’re making the reasonable bet that your home won’t ever be a complete loss. That may be a reasonable bet. The basement usually remains intact almost regardless of what happens to the rest of the house. Still, victims of the devastating Oakland Hills, Calif. fire in 1991 witnessed the destruction of even their basements. If you want to play it safe, insure at 100 percent.

Insurers generally cover a home’s contents up to between 50 and 75 percent of the home’s value. Make a list of your home’s contents for a more exact estimate of your needs. That also provides a written record that’s useful when you file a claim. The industry-sponsored Insurance Information Institute provides useful instructions on how to put together an inventory.

You’ll also have to pick a deductible, which is the amount you pay yourself before the insurance kicks in. The higher you go, the more you’ll save.

Buy the guarantees

Traditional guaranteed replacement cost coverage promises to pay whatever it takes to rebuild your home, even if it costs more than the original limits you purchased. That’s crucial in the event that labor and building costs balloon after a major disaster. In many states, large insurers now cap the guarantee at 120 to 125 percent of purchased limits.

Your safest bet is to seek a company with no cap. However, if you’ve properly valued your home’s replacement cost, the caps shouldn’t scare you. It’s unlikely that building and labor costs will go up to more than 120 percent of your home’s insured value.

If it’s not built into your policy, ask for replacement cost coverage for your home’s contents. Without it, you’ll end up with just the depreciated value of any object that’s damaged or stolen.