5 Home Insurance Endorsements & Coverages You Absolutely Need
- Replacement cost coverage on contents
- Replacement cost for dwelling
- Personal Injury liability coverage
- Off-premises theft exclusion endorsement
- Coverage C: Increased Special Limits of Liability Endorsement
Home insurance policies, in their basic form, are built to meet most needs of most people, which is to say, a home insurance policy can often be modified to provide better coverage for your specific needs, to fix gaps in coverage, or even to save money.
An insurance policy is a contract and the method for changing that contract is through endorsements. The original language of the policy remains intact, but the endorsement modifies the coverage or the details. Both the main coverage forms used by insurers and many endorsements that can change coverage must be approved by the state. This ensures that insurance coverage follows state guidelines.
Below are 5 home insurance policy endorsements that can enhance your coverage, provide new coverages, or save you money on your home insurance premiums.
1. Replacement cost coverage on contents
The most common type of home insurance policy for single-family homes is called an HO-3 policy. Generally, an HO-3 policy or its equivalent provides a solid coverage solution, particularly for the dwelling (your house), but most policies can be improved to provide even better coverage. One potential gap in coverage for an HO-3 policy is in the way your personal property is covered.
Many policies are built to provide what’s known as Actual Cash Value (ACV) for your personal property coverage. This means you’ll be compensated at the actual value of the damaged item(s). That sounds better than it really is, however. Actual cash value depreciates the value of your personal property based on expected wear and tear or due to age. A 5-year-old widescreen TV is probably worth significantly less than a new widescreen TV and a claim for the older TV may not provide enough coverage to purchase a replacement. You’ll have to pay the difference out of pocket if you want to watch the game.
There’s an endorsement for that. You can add coverage for Replacement Cost Value (RCV) to your policy through an endorsement so that a claim for your older television provides enough to purchase a new TV. Now, you can get back to watching the big game.
2. Replacement cost for dwelling
For most policies, replacement cost coverage is already included for damage to the dwelling (your house), meaning that the coverage for your home’s structure isn’t depreciated and that covered claims should provide enough to rebuild your home so it’s as good as new. However, this is worth verifying and even if you have replacement cost coverage, there may still be some potentially expensive gaps.
Roof coverage is often the biggest coverage-gap concern for policyholders. Many home insurance companies view a roof as a “wear item” and depreciate the roof’s insured value over time or use a schedule that decreases coverage by a fixed percentage each year for “used roofs”. Wind and hail damage to roofs are among the most common types of damage, so you can see how this can be a concern. Coverage for half the cost of rebuilding or repairing your roof won’t do much good. The rest of the roof-repair cost comes out of pocket.
The great news is that this potential coverage gap can usually be fixed with an endorsement to add replacement cost for your dwelling coverage. Just ask your agent about your options.
For older homes, you may also want to check the “ordinance or law” provision on your home insurance policy. Rebuilding an older home can lead to coverage concerns when local laws and building codes require significant upgrades to meet current building codes. A standard HO-3 policy provides an additional 10% coverage for meeting ordinances but this may or may not be sufficient. Again, this coverage amount can be changed.
3. Personal Injury liability coverage
Your home insurance policy also covers some types of personal liability. Notably, accidental bodily injury to others and unintentional damage to the property of others is covered up to your chosen coverage limits. Sounds great, right? There’s still a large potential exposure, however.
Personal injury sounds a bit like bodily injury, but it refers to damage to someone’s reputation. In a world where many of us are online frequently, sharing our thoughts about various topics on forums or social media, it’s easy to find yourself on the receiving end of a defamation lawsuit. Coverage for libel, slander, defamation, and more can be added through a very inexpensive personal injury liability endorsement.
As with your other liability coverage, your insurer will pay for your defense costs as well. Note, this endorsement isn’t a license to shoot flaming arrows at your online nemesis. It does, however, provide coverage for unintentional harm. Vicarious liability is covered also, so if your kids or teens cause unintentional personal injury, your personal injury liability endorsement can save the day.
Another option for personal liability coverage is an umbrella policy, which includes personal injury coverage and also extends your bodily injury liability and property damage liability limits for the underlying policies, your home and auto insurance policies.
4. Off-premises theft exclusion endorsement
Most people know that home insurance covers personal property losses due to theft. However, not everyone is aware that theft coverage also protects personal property “off-premises”, such as personal property in your car as opposed to property in your home. Off-premises coverage is typically limited to 10% of your home’s insured value and you won’t be able to find a line item on your policy that states the cost of off-premises coverage, but there may be savings available if you forgo off-premises theft coverage with an exclusion endorsement.
Looking at your personal property coverage pragmatically, most home insurance policies have a deductible of $1,000 or more. This means – assuming you have a $1,000 deductible – that only losses for over $1,000 will be paid and that $1,000 will be deducted from your claim settlement. A $500 stolen camera claim won’t be paid nor will a $1,000 stolen laptop claim if your computer is stolen from your car. A $1,200 covered loss will pay $200. Your theft coverage proves its value when you have several items worth thousands of dollars stolen from your home – but for smaller losses, the deductible prevents coverage or reduces coverage to a nearly negligible amount.
Unless you frequently have several thousand dollars’ worth of personal property off-premises, you may not find much real-world value in off-premises theft coverage. Ask your agent for a quote with the exclusion. The monthly and annual savings can make this endorsement a worthwhile choice.
5. Coverage C: Increased Special Limits of Liability Endorsement
The personal property coverage on your homeowners insurance policy, also called “Coverage C”, covers your personal property up to the coverage limits you choose. However, there are several sub-limits to coverage that may prevent you from being fully covered. Valuables, such as silverware, jewelry, firearms, and several other categories have per-category coverage limits that are often much lower than your total coverage limit. Some categories, like jewelry, also have per-item coverage limits. For example, your policy might provide $2,500 coverage for all jewelry, with a $1,000 per item limit. If you have jewelry that’s valued higher than those limits, you may not be as covered as you thought.
If a ring valued at $2,500 is stolen from your home, along with your new widescreen TV, the TV is likely to be covered at full value but only $1,000 will be paid for the stolen ring. Damage caused to your door or window due to forced-entry would be covered, with the entire claim being subject to your deductible.
Some home insurance policies offer an optional endorsement that allows you to raise those “special limits of liability” for valuables to a more agreeable figure in exchange for a small increase in premium, typically less than a few dollars per month. For more valuable jewelry, adding specific jewelry items to your policy as scheduled items is a better way to insure to full value but for general coverage, like all your silverware or all your furs, etc., the “increased special limits of liability endorsement” is an easy and affordable way to enhance your coverage and reduce your financial exposure.
The home insurance coverage review
Several recent news stories report that up to two-thirds of homeowners are underinsured and half of homeowners don’t have a clear understanding of their coverage. We suspect the second number might be a bit low. The average home insurance policy is dozens of pages long and uses special definitions that can be confusing to follow. It’s a good idea to review your policy with your agent every 18 months or so to be sure your coverage is still well-matched with your insurance needs.
Life keeps changing, bringing new assets into your home, new home additions, sheds, gazebos, and pools – and new personal liability considerations. Reviewing your policy with your agent can help you discover risks you may not have seen previously and provides the opportunity to craft a coverage solution for new risks or home-improvement investments. Getting the right types of coverage and the right limits doesn’t have to cost more. Often, your agent can help you identify opportunities to save money, like the off-premises theft exclusion endorsement, that can help you offset the cost of increased coverage in other areas.
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