Why
You Need Homeowner's Insurance
The largest single investment most
consumers make is in their home. The
consumer can protect their home,
possessions, and liability with a
homeowners's insurance policy. The
Homeowner's insurance policy is a
package policy that combines more than
one type of insurance coverage in a
single policy. There are four types of
coverages that are contained in the
homeowner's policy: dwelling and
personal property, personal liability,
medical payments, and additional living
expenses.
Property Damage Coverage
Property damage coverage helps pay for
damage to your home and personal
property. Other structures such as a
detached garage, a tool shed, or any
other building on your property are
usually covered for 10% of the amount of
coverage on your house.
Personal
property coverage will pay for personal
property including household furniture,
clothing, and other personal belongings.
The amount of insurance coverage is
usually 50% of the policy limit on your
dwelling. The coverage is also limited
by the types of loss listed in the
policy. The coverage only pays the
current cash value of the item
destroyed, unless you purchase
replacement cost coverage. Your
homeowner's policy also provides
off-premises coverage. This means that
the policy covers your belongings
against theft even when they are not
inside your home.
Personal Liability Coverage
Homeowner's policies provide personal
liability coverage that applies to
non-auto accidents on and off your
property if the injury or damage is
cased by you, a member of your family,
or your pet. The liability coverage in
your policy pays both for the cost of
defending you and paying for any damages
the court rules you must pay. Liability
insurance does not have a deductable
that you must meet before your insurer
begins to pay losses. The basic
liability coverage is usually $100,000
for each occurance. You can request
higher limits that are available for an
additional cost.
Medical Payments Coverage
Medical payment coverage pays if someone
outside your family is injured at your
home regardless of fault. This includes
payment for reasonable medical expenses
incurred within one year from the date
of loss for a person who is injured in
an accident in your home. The coverage
does not apply to ypu and members of
your household. The medical payments
portion of your homeowner's policy will
also pay if you are involved in the
injury of another person away from your
home in some limited circumstances.
Medical payments coverage limits are
generally $1,000 for each person.
Additional Living Expenses
If it is necessary for you to move into
a motel or apartment temporarily because
of damage caused by a peril covered in
your policy, your insurance company will
pay an amount up to 20% of the policy
limit on your dwelling for these
expenses. If you move in temporarily
with a friend or relative and do not
have any extra expenses, you will not be
paid any addditional living expenses by
your insurance company.
Home
Business
If you operate a home business full or
part time you might be uninsured and not
realize it. Many home business owners
believe that their homeowner's insurance
policy covers all of their home business
needs. You should not assume that your
homeowner's insurance policy will cover
your home business. Your homeowner's
policy may provide coverage but probably
only a maximum of $2,500 for business
equipment in the home and $250 away from
the premises.
The price
you pay for your homeowners insurance
can vary by hundreds of dollars,
depending on the insurance company you
buy your policy from. Here are some
things to consider when buying
homeowners insurance.
1.
Shop around
It will take some time, but could save
you a good sum of money. Ask your
friends, check the Yellow Pages or
contact your state insurance department.
National Association of Insurance
Commissioners (www.naic.org) has
information to help you choose an
insurer in your state, including
complaints. States often make
information available on typical rates
charged by major insurers and many
states provide the frequency of consumer
complaints by company. Also check
consumer guides, insurance agents,
companies and online insurance quote
services. This will give you an idea of
price ranges and tell you which
companies have the lowest prices. But
don't consider price alone. The insurer
you select should offer a fair price and
deliver the quality service you would
expect if you needed assistance in
filing a claim. So in assessing service
quality, use the complaint information
cited above and talk to a number of
insurers to get a feeling for the type
of service they give. Ask them what they
would do to lower your costs. Check the
financial stability of the companies you
are considering with rating companies
such as A.M. Best (www.ambest.com) and
Standard & Poor’s
(www.standardandpoors.com) and consult
consumer magazines. When you've narrowed
the field to three insurers, get price
quotes.
2.
Raise your deductible
Deductibles are the amount of money you
have to pay toward a loss before your
insurance company starts to pay a claim,
according to the terms of your policy.
The higher your deductible, the more
money you can save on your premiums.
Nowadays, most insurance companies
recommend a deductible of at least $500.
If you can afford to raise your
deductible to $1,000, you may save as
much as 25 percent. Remember, if you
live in a disaster-prone area, your
insurance policy may have a separate
deductible for certain kinds of damage.
If you live near the coast in the East,
you may have a separate windstorm
deductible; if you live in a state
vulnerable to hail storms, you may have
a separate deductible for hail; and if
you live in an earthquake-prone area,
your earthquake policy has a deductible.
3.
Don’t confuse what you paid for your
house with rebuilding costs
The land under your house isn't at risk
from theft, windstorm, fire and the
other perils covered in your homeowners
policy. So don't include its value in
deciding how much homeowners insurance
to buy. If you do, you will pay a higher
premium than you should.
4.
Buy your home and auto policies from the
same insurer
Some companies that sell homeowners,
auto and liability coverage will take 5
to 15 percent off your premium if you
buy two or more policies from them. But
make certain this combined price is
lower than buying the different
coverages from different companies.
5.
Make your home more disaster resistant
Find out from your insurance agent or
company representative what steps you
can take to make your home more
resistant to windstorms and other
natural disasters. You may be able to
save on your premiums by adding storm
shutters, reinforcing your roof or
buying stronger roofing materials. Older
homes can be retrofitted to make them
better able to withstand earthquakes. In
addition, consider modernizing your
heating, plumbing and electrical systems
to reduce the risk of fire and water
damage.
6.
Improve your home security
You can usually get discounts of at
least 5 percent for a smoke detector,
burglar alarm or dead-bolt locks. Some
companies offer to cut your premium by
as much as 15 or 20 percent if you
install a sophisticated sprinkler system
and a fire and burglar alarm that rings
at the police, fire or other monitoring
stations. These systems aren't cheap and
not every system qualifies for a
discount. Before you buy such a system,
find out what kind your insurer
recommends, how much the device would
cost and how much you'd save on
premiums.
7.
Seek out other discounts
Companies offer several types of
discounts, but they don't all offer the
same discount or the same amount of
discount in all states. For example,
since retired people stay at home more
than working people they are less likely
to be burglarized and may spot fires
sooner, too. Retired people also have
more time for maintaining their homes.
If you're at least 55 years old and
retired, you may qualify for a discount
of up to 10 percent at some companies.
Some employers and professional
associations administer group insurance
programs that may offer a better deal
than you can get elsewhere.
8.
Maintain a good credit record
Establishing a solid credit history can
cut your insurance costs. Insurers are
increasingly using credit information to
price homeowners insurance policies. In
most states, your insurer must advise
you of any adverse action, such as a
higher rate, at which time you should
verify the accuracy of the information
on which the insurer relied. To protect
your credit standing, pay your bills on
time, don't obtain more credit than you
need and keep your credit balances as
low as possible. Check your credit
record on a regular basis and have any
errors corrected promptly so that your
record remains accurate.
9.
Stay with the same insurer
If you've kept your coverage with a
company for several years, you may
receive a special discount for being a
long-term policyholder. Some insurers
will reduce their premiums by 5 percent
if you stay with them for three to five
years and by 10 percent if you remain a
policyholder for six years or more. But
make certain to periodically compare
this price with that of other policies.
10.
Review the limits in your policy and the
value of your possessions at least once
a year
You want your policy to cover any major
purchases or additions to your home. But
you don't want to spend money for
coverage you don't need. If your
five-year-old fur coat is no longer
worth the $5,000 you paid for it, you'll
want to reduce or cancel your floater
(extra insurance for items whose full
value is not covered by standard
homeowners policies such as expensive
jewelry, high-end computers and valuable
art work) and pocket the difference.
11.
Look for private insurance if you are in
a government plan
If you live in a high-risk area -- say,
one that is especially vulnerable to
coastal storms, fires, or crime -- and
have been buying your homeowners
insurance through a government plan, you
should check with an insurance agent or
company representative or contact your
state department of insurance for the
names of companies that might be
interested in your business. You may
find that there are steps you can take
that would allow you to buy insurance at
a lower price in the private market.
12.
When you’re buying a home, consider the
cost of homeowners insurance
You may pay less for insurance if you
buy a house close to a fire hydrant or
in a community that has a professional
rather than a volunteer fire department.
It may also be cheaper if your home’s
electrical, heating and plumbing systems
are less than 10 years old. If you live
in the East, consider a brick home
because it's more wind resistant. If you
live in an earthquake-prone area, look
for a wooden frame house because it is
more likely to withstand this type of
disaster. Choosing wisely could cut your
premiums by 5 to 15 percent.
Check the
CLUE (Comprehensive Loss Underwriting
Exchange) report of the home you are
thinking of buying. These reports
contain the insurance claim history of
the property and can help you judge some
of the problems the house may have.
Remember that flood insurance and
earthquake damage are not covered by a
standard homeowners policy. If you buy a
house in a flood-prone area, you'll have
to pay for a flood insurance policy that
costs an average of $400 a year. The
Federal Emergency Management Agency
provides useful information on flood
insurance on its Web site at
www.fema.gov/nfip. A separate earthquake
policy is available from most insurance
companies. The cost of the coverage will
depend on the likelihood of earthquakes
in your area.
If you have
questions about insurance for any of
your possessions, be sure to ask your
agent or company representative when
you're shopping around for a policy. For
example, if you run a business out of
your home, be sure to discuss coverage
for that business. Most homeowners
policies cover business equipment in the
home, but only up to $2,500 and they
offer no business liability insurance.
Although you want to lower your
homeowners insurance cost, you also want
to make certain you have all the
coverage you need.
Common Questions Asked by Homeowners
about Insurance
If a fire, flood, earthquake, or some
other natural disaster were to destroy
or damage your home, would you have the
right insurance coverage to rebuild your
house? Based on the questions consumers
most frequently ask, this explains what
is covered in a standard homeowners
policy and what is not. Where gaps in
coverage exist, it tells you how to fill
them. To simplify explanations, assume
that you have a policy known as
Homeowners-3 (HO-3), the most common
homeowners policy in the United States.
Find out what type of homeowners policy
you have. If you have a different
policy, you should review your options
in question #17.
# 1: Am I covered for direct
losses due to fire, lightning,
tornadoes, wind storms, hail,
explosions, smoke, vandalism and theft?
Yes. The HO-3 provides
broad coverage for these and other
disasters or “perils,” as they are
called in the policy, including all
those listed in the question. You should
check the dollar limits of insurance in
your policy and make sure you are
comfortable with the amount of insurance
you have for specific items. Also, if
you live near the Atlantic or Gulf
coasts there may be some restrictions on
your coverage for wind damage. Ask your
agent about windstorm/hurricane
deductibles. In areas prone to
hailstorms, you may have a specific hail
damage deductible.
# 2: Are my jewelry and other valuables
covered?
The standard policy provides only from
$1,000 to $2,000 for theft of jewelry.
If your jewelry is worth a lot more, you
should purchase higher limits. You may
wish to add a floater to your policy to
cover specific pieces of jewelry and
other expensive possessions such as
paintings, electronic equipment, stamp
collections or silverware, for example.
The floater will provide both higher
limits and protect you from additional
risks, not covered in your normal
policy.
# 3: If my house is totally destroyed in
a fire and I have $150,000 worth of
insurance to cover the structure, will
this be enough to rebuild my home?
If the cost of rebuilding your home is
equal to or less than $150,000 you would
have enough coverage. The HO-3 policy
pays for structural damage on a
replacement cost basis. If the cost of
replacing your home is, say, $120,000,
then that is all the insurance you need.
On the other hand if the cost of
rebuilding your home is $180,000, then
you will be short $30,000.
If you live
in an area that is frequently hit by
major storms, ask you insurance company
about an extended or guaranteed
replacement cost policy. This will
provide a certain amount over the policy
limit to rebuild your home so that if
building costs go up unexpectedly, due
to high demand for contractors and
materials, you will have extra funds to
cover the bill.
If you
choose not to rebuild your home, you
will receive the replacement cost of
your home, less depreciation. This is
called actual cash value. You should
make sure that the amount of insurance
you have will cover the cost of
rebuilding your house. You can find out
what this cost is by talking to your
real estate agent or builders in your
area.
Do not use
the price of your house as the basis for
the amount of insurance you purchase.
The market price of your house includes
the value of the land on which the house
is situated. In almost all cases, the
land will still be there after a
disaster, so you do not need to insure
it. You only need to insure the
structure.
# 4: Am I covered for flood damage?
No. If you live in a
flood-prone area it may be wise to
purchase flood insurance. Flood
insurance is provided by the federal
government, under a program run by the
Federal Insurance Administration. In
some parts of the country, homes can be
damaged or destroyed by mudslides. This
risk is also covered under flood
policies. Contact your agent or company
representative to get this insurance or
call the Federal Emergency Management
Agency at 1-800-427-4661 or visit its
Web site at www.fema.gov.
# 5: A pipe bursts and water flows all
over my floors. Am I covered?
Yes. The HO-3 covers
you for accidental discharge of water
from a plumbing system. You should check
your plumbing and heating systems once a
year. While you are covered for damage,
who needs the mess and hassle?
# 6: What if water seeps into my
basement from the ground, am I covered?
No. Water seepage is
excluded under the HO-3. And if the
water seepage is not due to a flood you
will not be covered under a flood
policy. Seepage is viewed as a
maintenance issue and is not covered by
insurance. You should see a contractor
about waterproofing your basement.
# 7: Am I covered for earthquake damage?
No. Earthquake coverage
is sold as additional coverage to the
homeowners policy. To find out whether
you should buy this insurance, talk to
your agent or company representative.
The cost of this coverage can vary
significantly from one area to another,
depending on the likelihood of a major
earthquake.
# 8: A neighbor slips on my sidewalk or
falls down my porch steps and threatens
to take me to court for damages. Does my
policy protect me?
Yes.
The policy will pay for damages, if a
fall or other accident on your property
is the result of your negligence. It
will also pay for the legal costs of
defending you against a claim. Also, the
medical payments part of your homeowners
policy will cover medical expenses, if a
neighbor or guest is injured on your
property. You should check to see how
much liability protection you have. The
standard amount is $100,000. If you feel
you need more, consider purchasing
higher limits.
# 9: A tree falls and damages my roof
during a storm. Am I covered?
Yes. You are covered
for the damage to your roof. You are
also covered for the removal of the
tree, generally up to a $500 limit. You
should cut down dead or dying trees
close to your house and prune branches
that are near your house. It's true that
your insurance covers damage, but
falling trees and branches can also
injure your family.
# 10: During a storm, a tree falls but
does no damage to my property. Am I
covered for the cost of removing the
tree?
Your trees
and shrubs are covered for losses due to
risks like vandalism, theft and fire,
but not wind damage. However, if a
fallen tree blocks access to your home
you may be covered for its removal.
Decide if you need extra insurance for
the trees, plants and shrubs on your
property. You may be able to purchase
extra insurance, which will not only
cover the cost of removing fallen trees,
but will also cover the cost of
replacing trees, and other plants.
# 11: If a storm causes a power outage
and all the food in my refrigerator or
freezer is spoiled and must be thrown
out, can I make a claim?
The general answer is no. However, there
are a number of exceptions. In some
states, food spoilage is covered under
the homeowners policy. In addition, if
the power loss is due to a break in a
power line on or close to your property,
you may be covered. You should check
with your agent to find out whether you
are covered for food spoilage in your
state. If not, you can add food spoilage
coverage to your policy for an
additional premium.
# 12: I have children away at college.
Are they covered by my homeowners
insurance?
If they’re full-time college students
and part of your household, your
insurance generally provides some
coverage in a dorm, typically 10 percent
of the contents limit. If they live off
campus, some companies may not provide
this limited coverage if the apartment
is rented in the student’s name.
# 13: My golf clubs are stolen from the
trunk of my car. Does my homeowners
policy cover the loss?
Yes.
The HO-3 covers your personal property
while it is anywhere in the world.
However, if your golf clubs are old, you
will only get their current value, which
may not be enough to purchase a new set.
Consider buying a replacement cost
endorsement for your personal property.
This way you will get what it costs to
replace the golf clubs, less the
applicable deductible.
# 14: I have a small power boat. If it
is stolen, am I covered? What if there
is a boating accident and I get sued? Am
I covered for that?
Whether or
not you are covered for either theft or
liability depends on the size of the
boat, the horsepower of the engine and
your insurance company. Coverage for
small boats under homeowners policies
varies significantly. Ask your insurance
representative whether you need a Boat
owners policy.
# 15: My house is close to the ocean.
I’ve heard that if it is destroyed by
the wind, the town's new building code
requires me to rebuild the house on
stilts. This will add $30,000 to the
cost of rebuilding my house. Am I
covered for this extra cost?
No. The HO-3 excludes
costs caused by ordinances or laws that
regulate the construction of buildings.
You can purchase an Ordinance or Law
endorsement. This will cover the extra
costs involved in meeting new building
codes.
# 16: Am I covered for “Acts of God”?
Sometimes. The term “Acts of God” is not
specifically mentioned in homeowners
insurance policies. It usually refers to
natural disasters like hurricanes and
tornadoes, as opposed to man-made acts,
like theft and auto accidents. Some
natural disasters, such as damage from
windstorms, hail, lightning and volcanic
eruptions, are covered under homeowners
insurance. Damage from floods and
earthquakes is not.
# 17: What should I do if my policy
provides less coverage than the HO-3?
Review your coverage with your agent.
Some older policies provide less
coverage than the HO-3. They may not
provide coverage for water damage,
theft, or liability. They may also
provide coverage for the house on an
actual cash value basis, rather than a
replacement cost basis.
Actual Cash
Value means replacement cost less
depreciation. For example, if your roof
is destroyed in a storm, the insurance
will only pay for the cost of a new roof
less the amount of depreciation of the
old roof. If your roof was in great
shape, this deduction will not be large.
However, if the roof was old and worn
out, the deduction for depreciation may
be significant. You should try to get an
HO-3.
