What kind of home? You may not be
looking at the correct article.
This is the right place if…
You own a home (free standing, not rented, not a mobile
home i.e.: the home is permanently attached to and part of the foundation).
Or,
You own a town-home (not a condominium or co-op or time
share). Perhaps this town home is attached to another residence, perhaps not.
I own the land that this town home sits on, but I am part of a town-home community)
This is not the right place if…
See "I own or rent a trailer, manufactured housing,
or double-wide..."
See Condominium or Co-op? Your Insurance Needs are Different
You will need to go elsewhere after
reading this article if…
I Own a Time-Share in Addition to Having Another Residence...
NOW! You own a home...
Many companies have either their own Homeowners policy
form or have endorsements to standard policy forms that help distinguish them
from the competition. Some companies like new, high-valued homes, some companies
do well with older or historic preservation homes. Others are comfortable with
country homes or old farm homes and some don't like the city. It pays to shop
around, both for the best coverage and for a company who likes homes in your
area.
Find a company that wants to insure your home. If the company
and agency already has a customer base in your area, consider them first. They
understand how to insure homes like yours. This agency or company may not always
have the cheapest policy, but they may have the best combination of coverage,
price, service and claims expertise for your particular needs.
Two Types of Coverage: Named Causes
of Loss or Risks of Physical Loss
- Named causes of loss coverage is just that. The policy
only covers for certain kinds of causes of loss to your property. You must
prove to the company that one of the covered causes damaged your property.
- Risks of physical loss covers all causes of loss except
those that are excluded. The company must prove that one of the excluded causes
of loss damaged your building.
Many companies offer risks of physical loss coverage for
your buildings and named causes of loss coverage for your "stuff".
Other companies will offer risks of physical loss coverage for virtually all
of your covered property. Risks of physical loss costs more, but here are some
claims that would not be covered under named causes of loss policies:
- The washing machine in the spin cycle danced across the
room and broke the water heater, cascading water throughout the home.
- A guest injured herself and bled all over the couch and
carpet.
- While the insured cleaned the imported crystal chandelier,
the chandelier fell, shattering into pieces.
- While working on the attic floor joists, the insured
slipped and put his foot through the ceiling.
- A two year old boy went on a rampage with a hammer, smashing
the bathroom toilet, sink, walls etc...
- The insured dropped a storm window. It cascaded through
the home, down the stairs, damaging walls along the way.
- The insured was cleaning the bowling ball in the bathroom
sink - the bowling ball slipped and shattered the sink.
- The insured's lawnmower kicked a rock through the exterior
air conditioner.
- The insured slipped and threw a full paint can into the
room; the spray hit virtually everything in the room.
- Freezing and thawing of ice on the roof caused a break
in the wall and water damage to the interior of the home
The policy name for risks of physical loss coverage for
buildings is often referred to as Homeowners form 3. To add risks of physical
loss to personal property under form 3, you must have the Homeowners 15 endorsement.
Some companies sell a Homeowners form 5 which does the same thing as the combined
Homeowners 3 plus the Homeowners 15 endorsement. Other companies have their
own risks of physical loss forms they call Special, Gold, Executive etc. Not
everyone will qualify for risks of physical loss, but most companies sell the
coverage.
NOTE: Your state
may have restrictions or natural disaster cause of loss problems. Coastal states
face wind problems. California, and certain Midwestern areas have severe earthquake
problems. Some Western states have brush fire problems. Other areas face hail
damage. Each state and company has its own rates and philosophy on how it will
insure these common causes of loss. Check around.
Policies that are considered named
causes of loss forms are the Homeowners 1 (not sold much any more), the Homeowners
2 and the special use Homeowners 8 forms
Homeowners 8
- Insures for the same causes of loss as the Homeowners
2 form.
- Designed for older homes. Older homes generally were
built with more expensive and/or exotic materials. You could not build most
turn of the century homes today for any price.
- Contains no coinsurance penalty. You and the company
agree on a maximum coverage limit if the building burns to the ground. NOTE:
in most states the company only has to pay for the actual cost to repair or
replace, so if the building costs less to rebuild than the limit of insurance,
only the cost to rebuild is paid.
- Not all companies will write the Homeowners 8. Some states
do not permit the sale of this policy.
Basic Homeowners coverages common
to all homeowners form that insure both the home and personal property…
- Coverage for your building.
- You work with the agent to establish the replacement
cost of your home.
- You must insure to 80 or 90% of replacement value
to avoid any kind of "under-insurance" penalty if you have a
loss. These penalties can include reduced payment, or change from payment
on a replacement cost basis to actual cash value. Actual cash value means
depreciation. Roofs depreciate over 20 years. A 10 year old roof is 50%
depreciated. Do you want only 50% of your repair bill paid? No. Work with
your agent to make sure you insure to value.
- Ask your agent if a guaranteed replacement value
clause in the policy is available. The Guaranteed replacement value clause
says that coinsurance will not be a factor if a properly prepared replacement
cost valuation is submitted at the same time the policy application is
submitted, provided this valuation is updated each year after.
- Coverage for your outbuildings - garages, sheds, barns,
cabanas - are usually covered as a percent (10-30%) of your building limit
of insurance. Normally these limits are adequate for the average 2 car garage,
but not for carriage houses, three car garages or barns. You can increase
the limits of insurance.
- Coverage for personal property ("stuff") is
usually 50-75% of your building limit. Again, this may be adequate for the
average homeowner, but are you average? How much stuff do you own? Is your
stuff new - is it of superior quality?
- Additional living expense coverage is usually a percent
of your building limit of insurance (20-40% or even a "no limit"
form commonly called actual loss sustained).
- Additional living expenses covers the additional
cost of temporary housing, food and other increased costs of living when
you are forced from your home by a fire or other covered cause of loss.
- If you have a tenant, the homeowners form can cover
your loss of rents if rent payments (by contract) do not continue after
a covered loss.
- For most customers, the limit of coverage provided
by the standard policy will be adequate, but if your home will take a
long time to repair or the loss occurs in the dead of winter, you may
not have enough to pay the extra living expenses.
- If you are in a disaster prone area (tornadoes, hurricanes,
earthquakes, wildfires), we have seen recent occurrences where it has
taken 2-3 times the normal time to repair property because materials and
workers were overwhelmed with work or unavailable.
- Actual loss sustained coverage is best, for there
is no limit to worry about.
- Endorsements: Sump pump, ordinance or law, business in
the home. There are literally hundreds of endorsements companies make available
to provide additional coverage not found in the standard homeowners policy.
This is where you need a good agent who specializes in personal lines insurance.
Let the agent ask you a lot of questions. The agent needs answers to build
the right policy for you. Homeowners policies are not cookie-cutter forms.
Every family's needs differ and a good agent can help you design the correct
plan for you.
- Theft limitations. This brief article is not the forum
to discuss every limitation and exclusion under the Homeowners form. However,
you need to know that certain "target" items have limited coverage
for theft. The limit shown is the average theft limit in the market. Your
company may provide less or more. Increase coverage by endorsement to the
policy or through a personal article floater policy. (See Click
here for information on insuring jewelry, furs and other high valued items
- Jewelry and gems ($1,000)
- Furs ($1,000)
- Gold, silverware, pewterware ($2,500)
- Guns ($2,000)
- Building supplies - no coverage for
theft
- Other Property limitations. The following property is
subject to certain maximum limits of coverage. The limit shown is the average
limit of insurance available in the market. Your company may provide less
or more. Increase coverage for most by endorsement to the policy.
- Electronics used in an auto ($1,000)
- Money ($200) Including coin collections
- face value only.
- Stamps ($1,000)
- Business personal property ($2,500
on, $250 off premises)
- Other than boat trailers ($1,000)
- Boat trailers ($1,000)
- Boats - anything bigger or more valuable
than a canoe - purchase a separate boat or yacht policy.
- Credit card forgery ($500)
- Fire department service charge ($500)
- Fine arts, antiques, Persian rugs, hummels and other
collections should be appraised and listed separately in a personal articles
floater or endorsement.
- Your personal property "stuff" can be covered
for replacement cost. That five year old refrigerator that is only worth $100
but would cost $600 to replace could be covered for $600 for this endorsement.
Ask for replacement cost contents coverage.
- Liability coverages are usually identical from form to
form, however some companies will have special endorsements to improve coverage.
We recommend that you always ask your agent to quote you an umbrella liability
policy (improves coverage and increases liability insurance limits to $1,000,000
or more).
- Liability covers you for your negligence in injuring
other people or property on your premises or through the actions of many
of your hobbies.
- The policy also provides defense coverage, including
hiring and paying for a lawyer (if necessary) and paying most court costs.
- Covered claims include: slips and falls; baseball
beans the neighbors child; you hit the foursome in front with your errant
hook shot; your lawnmower spits out a rock into traffic and blasts through
a car window, injuring the driver and the car.
- Homeowners insurance does not, however, provide you
any car insurance for any car you drive. High limits of insurance are
recommended, and again, you should ask your agent about an umbrella policy
to increase your coverage to $1,000,000 or more.
- Why high limits of liability insurance? Anyone can sue
for anything and for any amount.
- If your policy covers you for $100,000 liability
insurance and you are sued for $200,000, your insurance company will advise
you that you need to hire a lawyer at your own expense.
- If the insurance company pays out the $100,000, it's
obligation is done, but the lawsuit may not be over. Courts are backed
up. The high cost, whether good or bad, of lawsuits, court fees and lawyers
is not exaggerated.
- The injured party may not have to pay a dime in attorney's
fees until the lawsuit is won. You don't have that option. Your defense
lawyer will want to be paid from the day of hire, often for each hour
worked - even if you eventually lose the case.
- Medical payments coverage is for minor injuries to people
other than residents of the household. You don't have to be sued or be negligent.
- Example: Aunt Bertha from 200 miles away comes to
visit for a few days. The day she arrives she slips on the stairs and
breaks a hip.
- The insurance company will pay up to the medical
payments limit ($1,000 - $10,000 normally) for the medical expenses incurred.
After the medical payments limit is used up, you must be negligent and/or
sued by the injured person.
Cutting costs
Deductibles save money. Combine your auto and home insurance
with the same company. Many companies offer discounts on both auto and home
when you insure them together (not available in all states). Some companies
offer combination auto/home policies which usually provide superior coverage
at a lower price than if you were to cobble all the coverages together using
many policies (not available in all states).
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COPYRIGHT: Insurance Publishing Plus, Inc. 1996
All rights reserved. Production or distribution, whether
in whole or in part, in any form of media or language; and no matter what
country, state or territory, is expressly forbidden without written consent
of Insurance Publishing Plus, Inc.
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