When You Should Pay for Additional Structures Insurance Coverage

Homeowners insurance usually includes line-item coverage for additional structures or detached structures. However, many people don't have other structures or don't know what this coverage includes. So as they review their homeowners insurance policy to find savings, policyholders may wonder whether it is something they need.

Questioning this coverage line item is reasonable. You must first understand what is covered in your homeowners policy and what constitutes other or additional structures. You may also see this line listed as "detached buildings."

Premium Pricing for Homeowners Insurance

Insurance policies are standardized to include certain basic components on every homeowners policy form, although the exclusions and type of coverage that apply to each of the components of a policy vary from insurer to insurer. The basic components are always the starting point and the basis of the calculation of the premium. They include:

• Coverage A—the dwelling or building
• Coverage B—other structures
• Coverage C—personal property or contents
• Coverage D—the loss of use or additional living expenses
• Coverage E—personal liability
• Coverage F—medical payment to others

This premium pricing structure is based on percentages of the main factor—the value of the building. The other line items are usually added as a percentage of the primary building's value.

For example, the "other structures" item is typically 10% of that value, and personal property may be from 50% to 70% of the home value. The percentage used will vary from insurer to insurer.

The exact coverage is outlined in your policy's wording and is usually shown on your policy declaration page—most often, the first page in your policy package. The Insurance Services Office (ISO) developed the basic structure that all homeowners insurance providers follow.

Choosing Insurance Coverage for Your Home

Homeowners insurance is built differently from a car insurance policy. With auto policies, you can decide whether you want collision or comprehensive coverage for items such as windshield replacement, theft, fire, and other things. Your home insurance policy is not pieced together. It is a package policy.

You usually pay based on the main factor of the policy—the building or dwelling coverage. You then get the other details "included in the price." You might compare it to all-inclusive vacations, where you get everything included. If you tell them you are a vegetarian so you won't be eating meat, they do not alter the price.

That's the concept of these package deals. They keep things simple, so all the basics are covered. In most cases, you can't save money on your insurance by asking to remove the detached structure coverage or the loss of use.

Additional Structure Coverage

On your policy declaration page, the limit of insurance of additional structures will usually be identified near the amount of insurance on your "dwelling building."

The coverage will usually equal a maximum of 10% of the listed value of your home. So, for example, if your building or house is insured at $300,000, you might see an amount of $30,000 listed. Insurance policies offer varying basic limits; this is only a guideline to be used as an example. Check with your insurance representative to be sure of your exact limitations.

Before discussing deleting the coverage, you should understand what that coverage includes. The most obvious examples of other structures that you may have on your property are sheds or detached garages. However, it also covers:

• Fences
• Driveways
• Pools and pool houses
• Greenhouses
• Gazebos
• Guesthouses
• Barns
• Shelters or upscale outdoor dining huts

Removing "Other Structure" Coverage

Even if you have none of these items, your provider will not allow you to delete it. They are not charging an additional premium for the protection of these items. The line item is listed, however, to inform you of how much—dollarwise—the provider will cover these items if you should experience a loss.

Under some circumstances, an insurer might exclude specific coverages for additional structures if it believes they need renovations or have become dangerous due to lack of maintenance. Even under those circumstances, it would be quite uncommon to see a reduction in the price of your policy as a result.

Most homeowners have some additional structures, even if they don't realize they do. Policies are built that way to include those items, ensuring adequate protection for the majority, not the exceptions.

Very often, the coverage of the additional structure will not sufficiently insure the property. Some homeowners may wish to increase the 10% and add coverage to the policy to provide adequate coverage. The other option is to increase the dwelling's value, thereby increasing the 10% amount.

Reducing Your Premium

Some companies might allow you the option to reduce coverage C amounts. However, most providers require this value to be a percentage of the value of the dwelling or building.

You can call your insurer and ask. When you do, be very careful about the coverage you choose to reduce, and remember that you are insuring what may be your most important asset.

Another option to lower your insurance premiums is to increase your deductible, which is the amount you will pay out of pocket before the insurance coverage kicks in.

Cautions of Reducing Coverage

If you are struggling to find a way to save 10% of your insurance cost, how much more would you struggle in a major loss? Insurance might not be the place you want to cut costs.

For example, some companies offer the option to insure your home to the insured limit, instead of the guaranteed replacement cost. However, that is not an option that is recommended, because often, the calculations for determining the reconstruction value of your home are not foolproof. Building codes change often, and when your home is rebuilt, it will need to conform to the current building codes of your state.

Cutting your coverage back should only be the last resort. If you have a mortgage on the property, you will be limited as to how much coverage you can cut. You really take a significant risk in a claim by requesting a decrease in coverage.

Other Insurance Premium Discounts

Your best option to save money on your insurance is to make sure you have all the possible discounts to which you are entitled. These discounts may include:

• Professional, senior, or military rebates
• Home renovations and improvements to the current building code
• Adding fire sprinkler and remotely monitored burglar alarm systems
• Using a higher deductible or out-of-pocket amount
• Holding multiple policies from one provider

You can also inquire whether your insurance company offers stability rating or better rates with a credit score. Many people have not taken advantage of this opportunity to get a discount just by allowing a simple credit check. According to The Insurance Information Institute: "Some insurers will reduce their premiums by 5% if you stay with them for three to five years, and by 10% if you remain a policyholder for six years or more."

Under many circumstances, if you have been with an insurer for a long time, it may even have discretionary discounts or loyalty discounts it will add before risking losing you to a competitor.

Before Making Changes to Your Policy

If you still feel your home insurance premium is too high, shop around with other insurance companies. Start with an open discussion with your insurance representative, and let them know you are looking for the best rates. They may be in the best position to advise you on how to proceed while still protecting your interests.

If your insurance representative only represents one insurance company, consider dealing with a broker who might have access to more options. Ask friends whom they recommend to give you some solid professional advice.

There are a lot of hidden insurance discounts and programs that may apply to your situation. In the end, by opening the discussion, you will likely save far more than the 10% you were originally looking to cut off your premiums.