It’s May, a time when homeowners often think about major “Spring Cleaning” initiatives like clearing out the junk in the garage or finally tackling those boxes in the attic. This is also a great time of year to do a little cleaning and investigating on your homeowners policy.
For some, you may not have even actually reviewed your homeowners policy since you purchased your home; you simply selected some coverages and you set it to auto-renew each year. However, you are doing a disservice if you don’t review your policy annually to check for any areas that need to be changed or updated.
Your policy has two main functions: One, to provide reimbursement for costs associated with repairing theft, damage or destruction of yourproperty(such as a fire, structure damage, etc.). Two, your policy protects you the homeowner from potential lawsuits and insurance claims if someone is injured on your property – this is the liability portion of the policy and one often overlooked when determining coverage amounts.
Your liability insurance needs to be high enough to cover your costs if someone comes after you and tries to sue you for all your assets — which includes the home itself. Did you know that if a delivery person trips and falls on your driveway because of uneven concrete and then can no longer do his or her job because of an injury sustained you could be liable for not only medical costs but lost wages as well? Your liability policy protects you from losing your home in a situation like this.
So how much liability insurance do you really need? According to the Insurance Information Institute, you should have “enough liability insurance to protect your assets.” An average policy usually starts with a base of $100,000 of liability coverage but most homeowners have assets north of that figure when you add in retirement accounts, savings and other investments.
Most insurance agents will recommend at least $300,000 to $500,000 worth of coverage with recommendations usually at $1 million or more in higher property value regions. An important factor to consider when you are debating about which coverage to purchase is the idea of a premium differential — the amount the premium differs between two levels of coverage and the perceived benefit between the two. For example, you may be debating between a $1 million and a $1.5 million policy that has a relatively modest difference in premium. If you tend to be more risk averse, you might wish to select the slightly higher premium for an additional $500,000 peace of mind.
What if you have more assets beyond the liability limits on your policy? Consider adding a separate excess liability or umbrella policy – Your agent can provide recommendations and quotes for this option.
Don’t forget about liability on your rental property!
Just because you don’t live in a rental property you own, don’t think you are not just as responsible for liability coverage. While your tenants will have their own rental policy to coverage damage or theft for their possessions, you are still responsible if someone is injured on your property. Make sure to discuss any rental properties with your agent to ensure adequate coverage. On average these policies cost more than a traditional homeowner policy because of the sheer fact that no one will be as cautious in your property as you would be as the homeowner; don’t skimp on coverage though as you may find third parties more likely to file claims against landlords vs. homeowners.
Whether insuring your primary residence or rental property, be sure to disclosure your true assets net value to your agent to ensure you are as covered as possible to avoid a future financial loss.