1. What is homeowners insurance and who should consider buying it?
2. What factors should I consider when purchasing homeowners insurance?
3. What are the policy limits in the standard homeowners policy?
4. Where and when is my personal property covered?
5. What can I do to lower the cost of my homeowners insurance?
6. Are there exclusions I should know about?
Homeowners insurance is one of the most popular types of personal insurance on the market today. The typical homeowners policy has two main sections: 1) Section I covers the property of the insured; and, 2) Section II provides personal liability coverage to the insured. Anyone who owns or leases property has a need for this coverage. Many times, homeowners insurance is required by a lender as part of the requirement in obtaining a mortgage.
Several factors to consider when purchasing homeowners insurance: 1) Insure your home to at least 80% of replacement value to satisfy most insurers coinsurance requirements. Remember, market value does not equal replacement value of your home. Have an insurance agent help determine your home's replacement value; 2) Determine if you need any additional endorsements to the policy. For example, do you want replacement value on your personal property? Do you need earthquake coverage or flood coverage? Do you have high value items, like antiques, jewelry, or silverware that should be listed and covered specifically? 3) Determine Section II coverage limits. Do you need $100,000, $300,000, or $500,000 of personal liability, or an umbrella policy? Do you have other rental or vacation properties that you need coverage for liability? Ask your agent to guide you through these questions. The more information you disclose, the better your agent can help protect you.
Coverage A and B provide protection to the dwelling and other structures on the premises (sheds, garages, etc.) on an "all-risk" or special form coverage up to the policy limits. The policy limit for Coverage A is set by the homeowner at the time the insurance is secured. The policy limit for Coverage B is usually equal to 10% of the coverage limit on the dwelling (Coverage A). Coverage C covers losses to the insured's personal property on a named peril basis. The policy limit on Coverage C usually equals at least 50-75% of the dwelling limit. Coverage D allows for additional expenses that the policyholder may incur due to an insured and covered loss. Coverage D usually equals 20% of the dwelling limit. Finally, Coverage E-Personal Liability-is determined by the policyholder at the time the insurance is secured.
With most carriers, Coverage C provides coverage to your personal property (except property that is specifically excluded) on a Broad Form, or named-peril basis anywhere in the world. For example, if you purchased a piece of furniture while travelling, your homeowners policy would provide coverage for the named perils while the piece is in transit, even though it has never been in your home. (Check with your agent).
There are several ways to decrease the cost of your homeowners insurance. First, ask your agent if there are other companies he represents that offer competitive rates. Secondly, ask about any discounts that you may qualify for. Many insurers will offer you a discount if you have multiple policies with the same company. Other discounts are available for smoke detectors, alarm systems, deadbolt locks, plus longevity with the same company. Finally, ask about varying your deductible.
There may be exclusions listed and defined in your policy such as neglect, intentional loss, earth movement, flood, general power failure, and even damage caused by war. If you fail to take care of your property (e.g., a leaky roof not repaired), you may not be covered. Obviously, if you intend to lose an object or damage your property, there is no coverage. In addition, one other exclusion that can be costly is the Ordinance or Law exclusion. Building codes established by local government bodies that drive up the cost of rebuilding or repairing after a loss occurs may not be covered by your insurance policy. If you discover when replacing damaged property that current law demands higher grade or more expensive materials than the original ones being replaced, the new material may not be covered for the full price. Ask about those exclusions now instead of finding out at claim time.
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