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Home insurance isn't apples to apples

You’ve made a home for yourself. (Nicely done!) Naturally you want to protect where you live – and the things you love. But keep in mind that not all Homeowners policies are equal.

First of all, affordability is important! But so is heading off the less-than-pleasant surprise of paying a big bill out of pocket if you aren’t properly covered for something important. So instead of just comparing costs when you talk to your agent or broker, you may want to ask a few other questions to understand your policy’s total value.

These three should help you sort out apples from oranges (and maybe avoid an occasional lemon):

    1) How is my home or property valued?

If a fire or other disaster comes along, will your coverage be enough to replace everything? It depends on whether your home is valued at Replacement Cost or Actual Cash Value.

Replacement Cost means your insurance company will cover what it costs to replace your property at the time the damage occurs. This is often a better investment than Actual Cash Value. (Keep in mind you’ll still have limits on how much your policy pays out. If you haven’t reevaluated those in a few years, you could be underinsured.)

Actual Cash Value pays replacement cost – after subtracting depreciation (or how much the worth of your property has dropped since you bought it). What was valuable 15 years ago may be less so now (sorry, iMac G3). This option is more affordable, but it may not provide enough to actually replace your property.

    2) Am I covered for Equipment Breakdowns?

Nothing takes the sweet out of Home Sweet Home faster than a furnace failure or a washed-up washer. These mechanical meltdowns are even less fun if you have to pay for them out of your own pocket.

Equipment Breakdown coverage may be the right answer for you. Buying a separate Home Warranty policy can mean dealing with a different agent, different insurance company and a separate bill. First check with your Home insurance agent: some companies let you add Equipment Breakdown coverage directly to your Homeowners policy.

    3) Do I have a “Named Perils” or “Open Perils” policy?

These two fun terms have to do with what causes the damages your insurance company is willing to pay for! Let’s untangle the terminology and see how it works:

Named Perils means a specific list of bad things your insurer will pay out for. The most basic types of Homeowners policies will list out everything that’s covered. The super cheap (Basic – H01) option has only 10:

  • Fire/Lightning
  • Windstorm/Hail
  • Explosion
  • Riot or Civil Commotion
  • Aircraft
  • Vehicles (except damages caused by the insured)
  • Smoke
  • Vandalism
  • Theft
  • Volcanic Eruption

(Good news – the volcanic eruption should take care of the riot.)

The slightly pricier option (Broad – HO2) adds a few more types of perils:

  • Weight of Ice, Snow or Sleet
  • Falling Objects
  • Accidental Discharge, Leakage, or Overflow of Water/Steam (this is NOT flood coverage)
  • Sudden and Accidental Tearing Apart, Cracking, Burning or Bulging
  • Freezing
  • Sudden and Accidental Damage from Artificially Generated Electrical Current

With these Named Peril policies, if it’s not on the list – you’re on your own. But if you get the disaster right (or have no disaster at all), these options are the most affordable.

Open Perils flips that and only lists what you’re not covered for. These exclusions can vary by policy so be sure to read the list. If it’s not on there, anything (bad) goes! Of course that doesn’t mean your insurer will automatically pay out, but it does mean your claim won’t be immediately disqualified.

The most common Homeowners policy is called an HO3 – and it splits the difference between Open Perils and Named Perils. Your home itself is covered on an Open Perils and Replacement cost basis … and the property in your home is covered on a Named Perils and Actual Cash Value basis. (See how this all ties together?)

There’s a lot to sort out to make sure you’re getting the best home insurance value at the best price.

Mylo’s licensed insurance advisors are pros at knowing the specific needs of your home. Chat with us for a custom consultation on the right coverage for you!

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