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Homeowners FAQs
 
What is homeowners insurance and who should buy this type of coverage?
What is the difference between "actual cash value" and "replacement cost"?
What factors should I consider when purchasing homeowners insurance?
How much coverage do I need?
What is not covered by a Homeowner policy?
 What are some practical things I can do to lower the cost of my homeowners insurance?
What are the policy limits (i.e., coverage limits) in the standard homeowners policy?
Where and when is my personal property covered?
Umbrella Liability - Why have it?  What is it?  Who needs it?
Should I purchase Flood Insurance?
 
The answers to all these questions are below......
 
 
What is homeowners insurance and who should buy this type of coverage?
 
Homeowners insurance is one of the most popular forms of personal lines insurance on the market today. The typical homeowners policy has two main sections: Section I covers the property of the insured and Section II provides personal liability coverage to the insured. Almost anyone who owns or leases property has a need for this type of insurance. And most often, homeowners insurance is required by the lender as part of the requirements in obtaining 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 policy owner is entitled to the depreciated value of the damaged property. Under the "replacement cost" coverage, the policy owner is reimbursed an amount necessary to replace the article with one of similar type and quality at current prices.  The choice of which policy best suits your needs or desires is up to you when purchasing a homeowners policy, although if you currently have an actual cash value policy we can upgrade your protection to replacement cost for additional premium.
 
What factors should I consider when purchasing homeowners insurance?

There are a number of factors you should consider when purchasing any product or service, and insurance is no different.

Here is a short list of things you should consider when you purchase homeowners insurance.

First and foremost, purchase the amount and type of insurance that you need. Remember that if your policy limit is less than 80% of the replacement cost of your home, any loss payment from your insurance company will be subject to a coinsurance penalty. Also, determine the amount of personal property insurance and personal liability coverage that you need.

Second, determine which, if any, additional endorsements you want to add to your policy. For example, do you want the personal property replacement cost endorsement, the earthquake endorsement, etc..?
 
How much coverage do I need?
 

You need enough insurance to cover the following: 

  1. The structure of your home.
  2. Your personal possessions.
  3. The cost of additional living expenses if your home is damaged and you have to live elsewhere during repairs.
  4. Your liability to others.
You need enough insurance to cover the cost of rebuilding your home at current construction costs. Don't include the cost of the land. And don't base your rebuilding costs on the price you paid for your home. The cost of rebuilding could be more or less than the price you paid or could sell it for today.
 
Your home can be insured for either:
  • Replacement Cost--pays you the cost of replacing damaged property, with no deduction for depreciation, but with a maximum dollar amount of the policy limit.
  • Guaranteed Replacement Cost--pays the full cost of replacing damaged property, with no deduction for depreciation and no dollar limit. This coverage is not available in all states. Some insurance companies may limit coverage to a percentage of the cost of rebuilding your home, usually 125%. 
  • Actual Cash Value--pays you an amount equal to the replacement value of damaged property minus a depreciation allowance.

Unless a policy specifically states that property is covered for its replacement value, coverage is for actual cash value.

It is important that your policy should cover 100% of the replacement cost of your home. That way, the insurance company will pay you the full replacement cost for any damage up to the coverage limit. If you fear inflation will decrease the value of your policy, an inflation guard endorsement, which is built-in to many homeowners policies these days, ensures that your coverage amount increases a bit every year to keep up with inflation.  What this means, for example, is if your house increases in value next year by 5% your policy's replacement limit will also increase, according to some predetermined index of local home values.
 
What is not covered by a Homeowner policy?
 
There is a wide variety of damages, conditions, and costs that are not covered by homeowners insurance. Your insurance policy describes a number of situations that are specifically excepted or excluded from coverage (called exclusions). Some policies contain more exclusions than others. Your policy also describes certain conditions you must meet, and duties you must perform, in order for you to be covered. Terms and limitations that were originally included in your policy can be changed by a document called an "endorsement." For these reasons, you should carefully read your homeowners policy to learn the limitations and exclusions that apply to your specific situation. Here are just a few examples of situations when you may not be covered by a standard homeowners insurance policy:
  • Land
  • Coverage Limitations
  • Flooding
  • Business Activity
  • Coverage is Available by Another Insurance Policy
  • Theft by a Member of the Household

What are some practical things I can do to lower the cost of my homeowners insurance?

There are a number of things you can do to lower the cost of your homeowners insurance.

One way to lower the cost of your homeowners insurance is to look for any discounts that you may qualify for. For example, many insurers will offer a discount when you place both your automobile and homeowners insurance with the them. Other times, insurers offer discounts if there are deadbolt exterior locks on all your doors, or if your home has a security system. Be sure to ask us about any discounts you may qualify for.

Another easy way to lower the cost of your homeowners insurance is to raise your deductible. Increasing your deductible from $250 to $500 will lower your premium, sometimes by as much as five or ten percent. However, be careful to make sure that you have the financial resources necessary to handle the larger deductible.

What are the policy limits (i.e., coverage limits) in the standard homeowners policy?

[Note: this answer is based on the Insurance Services Office's HO-3 policy.]

Coverages A and B provide protection to the dwelling and other structures on the premises on an all risks basis up to the policy limits. The policy limit for Coverage A is set by the policyowner at the time the insurance is purchased. The policy limit for Coverage B is usually equal to 10% of the policy limit on Coverage A. Coverage C covers losses to the insured's personal property on a named perils basis. The policy limit on Coverage C is equal to 50% of the policy limit on Coverage A. Coverage D covers the additional expenses that the policyowner may incur when the residence cannot be used because of an insured loss. The policy limit for Coverage D is equal to 20% of the policy limit on Coverage A. The coverage limit on Coverage E — Personal Liability — is determined by the policyowner at the time the policy is issued. The coverage limit on Coverage F — Medical Payments to Others — is usually set at $1000 per injured person.
 

Where and when is my personal property covered?

Coverage C, which provides named perils coverage, applies to all your personal property (except property that is specifically excluded) anywhere in the world. For example, suppose that while traveling, you purchased a dresser and you want to ship it home. Your homeowners policy would provide coverage for the named perils while the dresser is in transit — even though the dresser has never been in your home before.
 
Umbrella Liability - Why have it?  What is it?  Who needs it?
 
Skyrocketing court settlements and medical costs can cause uneasy feelings about the adequacy of insurance protection.  Liability insurance pays for injuries to others due to negligent acts by you or another covered person on your policy.  Although the liability insurance provided under a home or auto insurance policy is adequate for most situations, in a few instances large lawsuit settlements do approach or exceed the limits of these policies.
 
An umbrella liability policy is designed to give you peace of mind from this concern.  It adds one million dollars (or multiples of $1 million) of protection to the liability limits of your home and auto insurance policy.* Should a judgment against you exceed the limits of that policy, the umbrella picks up the unpaid portion up to the umbrella policy limit.
 
Persons most likely to purchase an umbrella policy are:
  • "Likely "targets" for a large lawsuit--professionals, business owners, property owners, higher income individuals, etc.
  • Those who want greater peace of mind knowing that their life savings will be protected from a financially devastating lawsuit.
Coverage cost varies, but it is generally $200 to $250 per year for a $1 million limit. 

*The umbrella can also increase the liability limit for your boat, rental property, motor home, recreational vehicle, motorcycle, vacation home and others.
 
Should I purchase Flood Insurance?
 
A Homeowner policy does NOT cover flood damage, therefore you must purchase a separate policy for this coverage. If you live inside a high-risk flood zone as determined by the US Government Flood Maps, you may be required by a mortgage to obtain flood insurance. If not, you may purchase flood insurance as an optional protection. 
 

Do I need earthquake coverage? How can I get it?

Direct damages due to earthquakes are not covered under the standard homeowners insurance policy. However, unless you consider yourself living in an area that is prone to earthquakes, you may not want this coverage. 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. This endorsement will cover damages due to earthquakes, landslides, volcanic eruptions and other earth movements.
 
 


 

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