Homeowners Insurance Extras to Consider

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Getting homeowners insurance to guard your biggest investment is simply common sense. But does your homeowners insurance protect you as well as you think? When disaster strikes, a standard home insurance policy could fall short of the funds needed to rebuild your home or replace your belongings. To ensure you're fully covered, you may want to add some homeowners insurance extras.

What Does Homeowners Insurance Cover?

Standard homeowners insurance policies typically include four types of coverage:

  1. Structure or dwelling coverage pays to repair or rebuild your home after damage from a covered risk, such as fire or vandalism.
  2. Personal property coverage pays to replace belongings if they're destroyed, damaged or stolen.
  3. Alternative living expenses (ALE) coverage, or loss of use coverage, pays extra costs of living elsewhere if your home is uninhabitable while being rebuilt or repaired after a claim.
  4. Liability coverage provides financial and legal protection if someone is injured on your property.

Specifics of your coverage are summarized in your policy's declarations page and spelled out in detail in the policy itself. If you're not sure what your policy covers, your insurance agent can explain it and help determine whether you need additional coverage.

Homeowners Insurance Extras You May Need

You can augment your homeowners insurance by expanding any of the four basic types of coverage or purchasing specialized insurance. Here's a closer look at additional coverage to consider.

Extra Dwelling Coverage

Dwelling coverage should provide enough money to rebuild your home if it were destroyed. Lenders typically require homeowners insurance in the amount of the mortgage, which may not be enough to rebuild. The cost of rebuilding varies depending on materials used, square footage and the cost of materials and labor.

There are other factors at play. Rebuilding costs rise with inflation, so today's coverage may not be adequate 10 years down the road. Labor and materials costs can soar after disasters. The global pandemic and related supply chain issues have driven the price of materials including lumber, drywall and copper to new heights. To ensure you can rebuild your home as it was in the event of a disaster, consider these extras:

  • Inflation coverage increases your coverage annually to keep pace with inflation.
  • Ordinance or law coverage pays to rebuild your house to current building codes.
  • Extended replacement coverage allows an additional 20% or more above your dwelling coverage to handle higher costs.
  • Guaranteed replacement coverage pays to rebuild your home as it was, even if this surpasses your dwelling coverage limits.

You may need more than one of these extras. For example, guaranteed replacement coverage doesn't necessarily cover rebuilding a home to code.

Extra Personal Property Coverage

Standard personal property coverage pays the actual cash value of your belongings. If you're replacing 10-year-old furniture, the actual cash value probably won't be enough for new furniture. For that, you'd need replacement cost coverage, which pays to replace older items with equivalent new items.

Personal property coverage for certain items, such as computers, jewelry and artwork, is often limited to a few thousand dollars. If you have belongings worth more than that, ask about extra coverage for them.

Extra ALE Coverage

Alternative living expenses coverage is usually limited by time or dollar amount. For instance, it may be capped at a percentage of your dwelling coverage, such as 20%, or limited to 12 months. If rebuilding takes longer than expected, your ALE coverage could run out too soon. Increasing the amount or time limit of your ALE coverage helps ensure you're protected.

Extra Liability Coverage

You need enough liability coverage to protect your assets from a lawsuit. The Insurance Information Institute recommends buying $300,000 to $500,000 of liability coverage. For additional protection, buy umbrella insurance; it kicks in when your homeowners liability coverage runs out.

Coverage for Older Homes

Homes over 50 years old face greater risk of claims due to aging materials and may cost more to repair or rebuild, either due to specialized materials or labor, or because they must be brought up to code. If your home falls into this category, ask about policies designed for older homes. Do you own a designated historic home? National Trust Insurance Services sells insurance for them.

Insurance for Natural Disasters and Water Damage

Standard homeowners insurance policies won't cover damage from earthquakes; floods; landslides; sinkholes; sewer, septic tank or drain backups; or sump pump failures. If these disasters are common where you live, you'll need special coverage.

  • In a flood zone, ask about add-on or standalone flood insurance.
  • Some private insurance companies sell earthquake insurance; Californians can buy it from the California Earthquake Authority.
  • In areas prone to sinkholes, you can sometimes buy an endorsement or standalone sinkhole policy.
  • Water backups can happen to any home. Additional coverage for your specific water risk is usually very affordable.

Does Your Credit Affect Your Home Insurance Cost?

Adding extra home insurance coverage costs more, but maintaining good credit may help minimize the increase. Insurance companies in most states can check your credit-based insurance score when setting home insurance rates. Your account balances, payment history and recent credit applications can all affect your credit-based insurance score; lower scores could mean paying more for insurance.

In 2021, homeowners insurance cost an average of $2,285 annually, according to a nationwide analysis by Insure.com. Although credit-based insurance scores are just one factor affecting your homeowners insurance rates, it's wise to check your credit report and credit score before applying for insurance, and work on improving your credit score if necessary.

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