Limits of Coverage

Your insurance agent usually will help you decide how much dwelling coverage to buy
when you first get homeowners insurance. Your coverage should equal the full
replacement cost of your home. Note that replacement cost and market value are not
the same. The market value, which includes the price of your land, depends on the real
estate market. 

You should review your dwelling coverage from time to time to be sure it doesn’t drop
below the cost to replace your home. If it drops below 80% of the full replacement cost
of your home, your insurance company may reduce the amount that it will pay on a
claim. 
The limits of your coverage for other structures, for personal property and for loss of
use of your home are expressed as percentages of your dwelling limit. The coverage is
usually a set percentage (see Table 2). For example, if your dwelling coverage limit is
$150,000 and your coverage for personal property is limited to 50% of your dwelling
coverage, your coverage for personal property would be $75,000. Check your policy, as
coverage limits might be based on percentages different from those in Table 2. You
choose your coverage limits for your personal liability and for medical payments. 

• Coverage Component  - Typical Limit of Coverage
• Dwelling  - You Choose
• Other Structures - 10% of Dwelling Coverage LImit
• Personal Property - 50% of Dwelling Coverage Limit
• Loss of Use - 20% of Dwelling Coverage Limit
• Personal Liability - You Choose
• Medical Payments - You Choose

Deductibles

A deductible is the money you have to pay out-of-pocket on a claim before the policy
pays the loss. The deductible applies to coverage for your home and personal property
and is paid on each claim. Higher policy deductibles mean lower policy premiums. A
policy with a $1,000 deductible will have a lower premium than the same policy with a
$500 deductible. In some locations, there are also catastrophe deductibles, which are
expressed as a percentage instead of a dollar amount. Having a higher deductible can be a good way to save money on your homeowners insurance premium and to submit fewer claims. However, be sure you can afford the deductible in case you have a loss.