Optional Homeowners Insurance Coverage You Need to Consider

There are many types of optional homeowners insurance coverage worth considering, depending on the specifics of your property. Evaluate what your current policy does and doesn’t cover since most standard policies don’t cover specific types of events like floods or earthquakes. Then, make sure you’re at least protected from all situations you’re moderately likely to encounter.

Why You May Need Additional Home Coverage

While a homeowners insurance policy will cover many of the most common types of damage that may occur to your home, it doesn’t cover everything. There are many gaps in the typical homeowners insurance policy. 

You may need to pay more for optional coverage to properly prepare for these potential events. These optional policies are often separate policies with their own deductibles.

This isn’t to say all optional types of coverage are necessary. The exact coverage you need will depend on your situation. 

Other Types of Homeowners Insurance

The following are types of optional homeowners insurance coverage you should consider if the specifics of your situation make the covered situations likely to occur:

Flood Insurance

According to FEMA, flooding is one of the most common types of disasters to impact a homeowner, and it is also one of the most expensive[1]. The organization states that flood insurance is one of the most valuable types of supplemental insurance a homeowner can have. As many as a quarter of all National Flood Insurance Program (NFIP) claims come from areas that are not considered high risk. Flooding can occur almost anywhere in the right conditions.

Flooding can occur due to tropical cyclones, hurricanes, and other types of severe storms. Debris can also clog a river or stream, causing water to overflow and flood the surrounding area.

The cost of a policy through NFIP (a program managed by FEMA that includes over 50 insurance carriers) for flooding coverage varies but can be as low as $50 per month. Considering floods can do tens of thousands of dollars in damage to a home (or even more), it is at least worth considering for most homeowners.

Earthquake Insurance

It’s been estimated about half of all Americans are at risk of damage from an earthquake despite earthquake damage not typically being covered by homeowners insurance[2]. Earthquakes can also be difficult to predict, with some so severe they can completely destroy a home. 

Estimates from different insurers place the average cost of earthquake insurance between around $800 and $850 per year. Homeowners in high-risk areas may have to pay significantly more, with some paying over $2,000 per year. 

In California, only about 10% of homeowners have earthquake insurance.[7] This means they may be stuck with huge bills to pay themselves if an earthquake damages their home.

Research how likely your property is to be affected by an earthquake, and try to see the level of damage typically dealt to your area if a bad earthquake occurs. Even a costly earthquake insurance package will likely be worth it if your home is severely damaged by one.

Water Backup Insurance

Water backup insurance covers issues relating to backed-up drains, sewers, or gutters as well as problems relating to failed sump pumps. It will typically cover not only the damage directly caused by these problems but also other issues stemming from them, such as mold. A homeowner just needs to make sure to report any problems quickly, so there is no accusation of neglecting the problem.

Water backup insurance typically isn’t very expensive, with costs ranging from $50 to $250 per year.[15] Water damage resulting from backed-up drains, failed pumps, and other issues covered by this coverage is also fairly common. Most people should consider at least one of the cheaper options that provide this coverage.

Personal Liability Insurance

This type of insurance is used to provide coverage for events where you are found liable for property damage or the bodily injury of other parties.[11] It can be used to cover things like legal fees, medical expenses, repair costs, and more. 

Note that this type of insurance doesn’t cover all situations where a person is injured. Injuries to yourself are typically covered by health insurance, for example. It also doesn’t cover damage or injury that you cause intentionally.

Personal liability insurance often comes standard with homeowners and renters insurance policies. It is mostly noted here to highlight its value.[3] Check your current policy and make sure you’re receiving some level of personal liability coverage.

Medical Payments Coverage

Medical payments coverage, or MedPay, is usually an optional type of car insurance coverage that can be used to cover medical bills after a car accident.[10] In states where it isn’t available, a similar type of coverage, personal injury protection (PIP), generally is. 

Quotes on the total cost of medical payment coverage vary, but it seems to generally cost about $10 per month on top of the cost of a typical car insurance policy. Its necessity will vary depending on how much you drive and the quality of your health insurance policy.

Ordinance Insurance

Also called law and ordinance coverage, this type of coverage is for protection in cases where your property must be updated to meet new law or building codes.[9] It’s very common for commercial properties to use this type of coverage, but homeowners can also benefit from it.

The cost of this coverage varies, averaging $66 extra per year for $40,000 worth of coverage.[8] How necessary it might be will depend on where you live, the age of your home, and how often rules and regulations regarding your home change. 

Identity Theft Insurance

Identity theft is when an individual steals personal information from another and fraudulently uses it for some criminal purpose (often to take out loans or get credit cards in the other person’s name). Identity theft has the potential to cause a person massive problems, such as tanking their credit score and forcing them to deal with fees they never agreed to. 

The process of recovering from identity theft can be expensive and time consuming. Identity theft insurance can help.

The typical identity theft insurance policy will cost between $25 to $60 a year.[4] The necessity of this insurance will depend on how at risk you are for identity theft. 

Importantly, an individual shouldn’t assume they are safe from identity theft, especially if they aren’t particularly tech savvy. While there are steps you can take to protect yourself against identity theft, data breaches are the primary cause. 

Guaranteed Replacement Cost 

Guaranteed replacement cost is a type of coverage available in some homeowners insurance policies that covers the cost to repair or replace a home after a covered loss, even if the cost would normally exceed the limits of your policy.[13] While it’s important to understand the specifics of your policy, this type of coverage will often allow you to repair or replace your home to a similar level of quality as it was before it was damaged (sometimes with slight improvements). 

Some insurance companies offer this as a standard option in their policies, but others may not. Research which insurers offer to those in your area and see how it will affect the cost of your policy if available, although this type of coverage shouldn’t typically be expensive.

Extended Replacement Cost

Extended replacement cost is a type of coverage offered by many insurance companies that extends a policy’s dwelling coverage.[13] 

For example, if your home is destroyed by an event covered under your policy and you have $300,000 in dwelling coverage, a $350,000 bill to repair the damages would mean you typically pay $50,000 out of pocket. A 25% extended replacement endorsement on your policy would raise your limit to $375,000, meaning you would instead pay nothing out of pocket (assuming you’ve met your deductible).

Costs can vary significantly for extended replacement endorsements on a policy. You will need to research your options from different insurance companies in your area. It often costs significantly more to get high-risk areas like coastal properties insured on these kinds of endorsements. 

One of the biggest factors will also be what level of extension you want. Extensions to your dwelling coverage are typically available between 10% to 50%.

Green Home Insurance

Some insurance policies offer an interesting item in their policies that allows for a person to get more of their replacement costs covered if they rebuild or repair with eco-friendly materials.[5] One example is Travelers’ Green Home Additional Coverages. This allows you to get 10% more in replacement cost coverage if using green materials. 

The specifics and availability of this type of insurance coverage varies significantly. However, it’s worth researching if insurers available to you have these types of policy options, especially if you are looking to become more eco-friendly. 

Service Line Coverage

Service line coverage covers the cost of excavating and repairing damaged utility, water, and sewer lines. These lines can be damaged by growing trees, bad weather, and heavy machines passing over the surface, and older lines are more prone to damage. Depending on the situation, the cost of paying for these types of repairs yourself can be upward of $10,000.

The cost of service line coverage will vary, but you can expect to pay about $30 per year.[12] This type of coverage can save you thousands of dollars if you have an issue with your lines. 

If you’re unsure whether it’s worth it, find out where your lines run and consider how vulnerable they might be to damage, such as from trees growing nearby.

Dog Limited Liability Coverage

This type of coverage is for costs resulting from a covered dog injuring a person or damaging property. While typically associated with costs from dogs acting aggressively, such as biting, this type of coverage can also cover more accidental incidents, such as a dog tripping someone with their leash. 

The necessity of this coverage obviously varies significantly. If you own an aggressive dog and there is any risk that it might hurt another person, you should likely get this type of policy. However, even dogs that aren’t normally aggressive can sometimes bite unexpectedly, especially if handled roughly by young children. 

This type of coverage is available for as low as $10 a month, but the cost will vary depending on the breed of dog being covered and the amount of coverage you want.[14] Certain policies exclude certain breeds of dogs, such as pit bulls, so confirm the policy covers your specific type of dog. 

Home Foundation Coverage

Home foundation coverage covers damage done to a home’s foundation, which can be expensive.[6] This is often termed as dwelling foundation coverage.

In most cases, damage to the foundation of your home is covered under your standard homeowners insurance policy as part of dwelling coverage. If you have an additional flood or earthquake endorsement on your policy, and damage to your foundation is due to those events, those policies will kick in to cover it. Dwelling foundation coverage specifically relates to some circumstances that damage your foundation, such as a burst pipe.

For example, a heavy object falling on your home and damaging your foundation would likely be covered by a typical homeowners insurance policy. However, damage resulting from a flood wouldn’t be. You would need flood insurance.

The average cost of repairing a foundation is around $3,500 and even minor issues can cost thousands of dollars to fix. This is also why it’s a good idea to periodically get your foundation inspected, so issues can be caught early.

Frequently Asked Questions About Optional Homeowners Insurance Coverage

The following are some frequently asked questions relating to optional homeowners insurance coverage: