Homeowners Insurance
• Homeowners Insurance can be written to cover the primary residence of an individual or family, ranging from simply insuring the personal belongings of an apartment tenant, to a multimillion dollar mansion, including the complete structures, contents, and all the collectibles that go along with it.
• Homeowners Insurance is available with various coverage forms that can include such coverage options as "replacement cost on contents", "guaranteed replacement cost on dwelling", and even an "all-risk" form covering the structure.
• Liability Insurance is included on most policies automatically which covers personal liability (with limitations) not only on the premises, but worldwide.
What is homeowners insurance, and who should buy it?
Homeowners is one of the most popular forms of personal insurance on the market. The typical homeowners policy has two main sections: Section I covers your property, and Section II provides personal liability coverage (to cover you in case of lawsuits arising from things that happen on your property). Almost anyone who owns or leases property should have this type of insurance. Often, homeowners insurance is required by lenders as a requirement to obtain a mortgage.
What is the difference between "actual cash value" and "replacement cost"?
Covered losses under a homeowners policy can be paid on either an actual cash value basis or on a replacement cost basis. When "actual cash value" is used, the policyowner is usually entitled to the depreciated value of the damaged property – so the older the item is, the less money you may receive for it. Under the "replacement cost" coverage, the policyowner is reimbursed the amount it costs to replace the property with something of a similar type and quality at current prices.
What are the limits in the standard homeowners policy?
[Note: this answer is based on the typical Insurance Services Office's HO-3 policy.] Coverage A and B cover your dwelling and other structures on the premises on an "all risks" basis up to the policy limits.
You set the limit for Coverage A when you buy the policy. The Coverage B limit is usually equal to 10% of the policy limit on Coverage A. Coverage C covers losses to your personal property on a "named perils" basis, which means you’re covered for all the perils specifically named on your policy. The policy limit on Coverage C is equal to 50% of the policy limit on Coverage A. Coverage D covers extra expenses you may incur when the residence can’t be used because of an insured loss. The policy limit for Coverage D is equal to 20% of the policy limit on Coverage A. You choose the Coverage E - personal liability - limit when you buy the policy. The limit on Coverage F - medical payments to others - is usually set at $1000-$5000 per injured person.
Where and when is my personal property covered?
Coverage C, the named perils coverage, applies to your general personal property just about anywhere in the world. For example, suppose that while traveling, you purchased a dresser and you wanted to ship it home. Many homeowners policies provide coverage while the dresser is in transit - even though the dresser has never been in your home before. Consult with your Agent.
Do I need earthquake coverage? How can I get it?
Direct damages due to earthquakes are not covered under most standard homeowners insurance policies. And unless you live in an area prone to earthquakes. If you do live in a part of the country with high earthquake activity you may want to consider adding an earthquake endorsement to your homeowners insurance policy, or buying a separate earthquake policy. This will help cover damages due to earthquakes, landslides, volcanic eruptions and other earth movements.
What should I consider when buying homeowners insurance?
First and foremost, buy the amount and type of insurance you need. Remember: many policies have provisions that if your coverage limit is less than 80% of the replacement cost of your home at the time of a claim, you will suffer a "coinsurance penalty". This means you may have out-of-pocket expenses to cover costs beyond your policy’s deductible. Let’s take an example where your home's estimated replacement value (RCV) is $100,000. And let’s assume the co-insurance clause in your policy requires you carry at least $80,000 (80% of your RCV), If you bought a $40,000 policy you would be underinsured considered severely underinsured, and may be subject to the coinsurance penalty spelled out in your policy. In such a scenario, the company might be authorized to pay only half of a loss less the policy deductible. If you had a $500 deductible and suffered a $10,000 covered loss, your policy might only pay $4,500.
Also, figure out how much personal property insurance and personal liability coverage you need. Personal property, like a home, should be insured for its replacement value. Personal liability is a bit more subjective, but limits should be carefully chosen. Seek advice from a legal professional. Finally, think about the extras you might want to add to your policy. For example, do you want the personal property replacement cost endorsement, the earthquake endorsement, or even the flood or backup of water through sewers endorsement ( each where available)? Finally, once you have decided on the coverages you want, you can decide which agent and company you would like to insure you. You should also decide whether you would like an Professional Independent insurance Agent to represent you, or whether you want to buy the product directly from an Insurance Company without an agent.
What is the difference between an "all risks" policy and a "named perils" policy?
A named perils policy covers losses arising only from those perils listed in the policy. Those typically include fire, windstorm, hail, and a few other named perils. An all risks policy covers losses that arise from a broader set of perils except those specifically excluded in the policy. An all risks policy provides broader protection than a named perils policy.
What can I do to lower the cost of my homeowners insurance?
The best thing to do is to contact a Professional Independent Insurance Agent to compare a multitude of leading Insurance Companies to find the most competitive policies in your local area. You could find quotes on homeowners insurance that vary by hundreds of dollars for the same coverage on the same home. When you shop alone, without a Professional Agent’s expertise, it is difficult for you to make sure each insurer is offering the same coverage. Many insurers use the ISO policy forms, but this is not even always the case. Another way to cut costs is to look for specific discounts that apply to you. For example, many insurers will offer a discount when you buy both your automobile and homeowners insurance together, from the same company. Some insurers offer discounts if you have deadbolt exterior locks on all your doors, or if your home has a security system. Ask your agent or company about these and other discounts. Another easy way to save is to raise your deductible. Simply increasing your deductible from $250 to $500 can sometimes lower your premium by as much as five or ten percent. However, you should be sure you have enough cash on hand to cover the larger deductible in case of emergency.
If I have an accident I think is covered under my homeowners policy, what should I do?
Insurance contracts are conditional contracts, which means policyowners have certain responsibilities to meet if a covered loss occurs. Not completing these can result in non-payment by the insurance company for losses that otherwise would have been covered. These include: (1) notifying the insurance company that a loss has occurred -- this should be done as soon as you discover the loss; (2) protecting the property from further damage and/or making any repairs necessary to prevent further damage; (3) preparing a detailed list of the personal items damaged that contains descriptions, the items’ actual cash value, or their replacement cost if you have added the replacement cost endorsement to your policy; (4) being prepared to show the company and/or the insurance agent the damaged items; (5) completing a statement for the insurance company that explains how the loss occurred -- for example, the time the damage occurred, the cause, etc.
Who pays for my legal defense costs if I am sued?
In the unfortunate event that you are sued, your homeowners policy will in most cases, not only cover the cost of your legal defense but also provide the legal counsel.
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Interested in more information?
DRISCOLL INSURANCE AND FINANCIAL SERVICES, INC.
Jack E. Driscoll, CFP, CFS, LUTCF, ChFC
2738 South Park Road Bethel Park, PA 15102
Phone #: (412)833-1500
Phone #: (1-800)833-1910
