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How Limits Affect The Value Of A Home Insurance Policy

2010-10-05

Home owner insurance policies are often subject to maximum liability limitations. These home insurance limits are the highest dollar amount that a policy holder can receive for claimed damage. Any amounts in excess of these limits must come directly from the policy holder's pocket.

There are several types of limitations. There is a total policy limitation, which comes into effect when a residence is completely destroyed and must be demolished. These amounts are typically the value of the home at the time of the accident. Other types of policy limits exist for property and flood damage and personal injury. Here again, these maximum benefit amounts are the limits to which an insurance company can be held to pay for residential damage or personal injury befalling the home owner or a third party.

Home insurance limits vary and are typically chosen by the policy holder. Available values typically range from $10,000 to $100,000 and increase in $5,000 or $10,000 increments. Sometimes, an insurance company will only offer three or four limits to customers. Additionally, some insurance companies will make certain limits unavailable to policy holders. This is often the case where the value of the home, and therefore, the cost of repairing any damage would be quite high or the type of injury that could occur on the property would be severe. In these situations, an insurance company may not permit a potential customer from choosing a damage or personal injury maximum benefit of less than, for example, $50,000.

Home owner insurance limits affect the value of a home insurance policy by increasing the cost of the premium and deductible. Usually, higher policy limits require a customer to pay a higher per-incident deductible and policy premium. While many insurance companies permit policy holders to choose the amount of per-incident deductible for the different aspects of their policy, a lower deductible may not be available on higher policy limits.

The reason why lower deductibles are not offered for higher policy limits is because the cost to the insurance company would be disproportionate to the amount the policy holder must pay. Therefore, it is nearly impossible to obtain a $100,000 policy limit with a zero deductible. If, however, a company has no such limitation, it is likely that the insurance company will lower the discrepancy in the two costs by charging a higher monthly or yearly premium.

Home owner insurance values are affected by policy limits on a sliding scale. Limits are chosen by the policy holder, but those choices often determine the deductibles available and premium cost. Prior to choosing a policy, analyze and calculate all of these aspects to determine the actual policy value.