6 Key Things to Look for in an Excellent Homeowner’s policy.

Many of the biggest and best insurance companies offer less than ideal policies. The majority of homeowner’s actually don’t have the coverage they want and they think they have. Not all policies are the same; here are some key things to consider:

1. Does your home have “full replacement cost” or the more limiting “extended replacement cost” like 95% of policies have. That can make a difference of $10,000. to hundreds of thousands of dollars in out of pocket costs after any fire.

2. Does your policy have “ordinance and law” coverage to pay for current code requirements or will your policy just pay to replace what was there? Many policies don’t have any coverage for ordinance and law or severely limit coverage. New codes often require indoor fire sprinklers or additional outlets throughout the home that can be an expensive out of pocket expense.

3. Does your policy have “Additional Living Expense” (ALE) coverage or broader “Loss Of Use” (LOU) coverage? ALE will not pay for your additional living expenses if you are just required to evacuate for a week (for an approaching wildfire, for example) but end up having no damage to your home, whereas LOU generally pays for up to two weeks when “civil authority prohibits use”. The best policies extend this to up to 45 days.

4. Furthermore, some companies limit coverage from Additional Living Expense or Loss Of Use to a specific time limit of 12 - 24 months. For a larger home, or in rural areas where the number of homes having to be replaced exceeds the number of quality contractors to go around, it is very unlikely the 12 mo. limit on additional living expenses will be enough. This would likely result in large out of pocket expenses.

5. Many policies limit either Additional Living Expense or Loss Of Use to 20% of the estimated replacement cost of the home. Better policies provide 25%, 30% or just a time limit. That can mean an additional $20-40,000 in out of pocket costs without the better coverage.

6. What type of perils coverage is offered? Most policies offer “Broad,” or the better, “Special” perils coverage. They both limit the types of things that can go wrong that are covered to their list of 16 or 17 covered perils. “Comprehensive” perils is even better – unless it is specifically excluded, the loss is covered.

To summarize, when looking for homeowner’s coverage, especially on homes over $300,000, look for very broad coverage; offering the broader Loss Of Use coverage (instead of the more restrictive Additional Living Expense), either no time frame or a 2 year time frame (as opposed the more restrictive 12 mo. time frame) for Loss Of Use, and the limits of Loss Of Use being only limited by the total dwelling coverage amount or the blanket limit amount, (not the more restrictive 20% of the dwelling). The best policies should pay for Loss Of Use due to civil authority for up to 45 days (which many policies do not). And they should have Comprehensive perils (instead of the more restrictive Broad or Special perils coverage.) What’s all this likely to cost? Well, for clients with good credit scores, they will usually pay far less than their current policy, even with all the extra coverage.

Eric Kossian, started his insurance career in 1988. He was an Underwriting Specialist before starting his insurance agencies catering to financially responsible clients throughout Washington State.