Your home may be your largest investment.
Aside from being an "investment" it’s also a home for you and your family - your great American dream. A homeowner’s insurance policy provides protection for your home, your personal property, and your personal liability.
There are various forms of homeowner’s policies offered by insurers. Some forms offer very broad coverages. while others are restrictive. Certain coverages and limits of coverage are required by your mortgage company, unless you are one of the rare Americans who owns their home outright, but even if you have no mortgage company, you certainly want to protect your assets.
Premium rates vary between insurers, depending on the insurer and coverages included in your homeowner’s policy. If your home meets underwriting guidelines as to age, territory, type of construction, maintenance of the property and you meet the personal standards of being a responsible citizen with a good credit rating, you may be eligible for very broad coverages at very low premium rates, depending on the replacement cost of your home.
Some of the discounts offered by insurers are for newer home, ceramic tile roof, fire/burglary alarm system, gated communities, auto insurance with the same insurer, loss free renewal, and higher deductibles.
Premiums for homeowner’s policies are usually paid in advance upon closing escrow. Renewals are billed directly to your mortgage company and paid from your "monthly" impound account. If you own your home outright, billings are mailed to you direct.
Here are basic coverage sections in most Homeowners policies offered by Auto Insurance America:
DWELLING COVERAGE
Repairs or replaces your home from losses caused by fire, lightning, vandalism, windstorm, hail, burglary, glass breakage, and numerous other perils, subject to the deductible(s) you purchase. Flood insurance is not included in a homeowner’s policy and must be purchased separately. Additional coverage included in a homeowner’s policy pays for cleanup of debris from a covered loss, water damage resulting from sudden bursting pipes or water heaters and many other perils that can damage your home. Coverage is excluded for "wear and tear" and maintenance problems, not caused by sudden direct and accidental loss. Your homeowner’s policy is not meant to be a maintenance policy. Your deductible applies to each loss. Dwelling coverage is required by mortgage companies, usually in certain minimum amounts tied to your loan balance. Mortgage companies may also require that you maintain flood insurance if your home is in a designated flood zone.
Most insurers offer Replacement Cost Coverage which repairs or replaces your home from a covered loss at current prices, without deducting depreciation. That’s important, since you may not have a loss until years after you purchase the policy and costs may change drastically. In order to obtain Replacement Cost Coverage, you must insure your home to its proper value.
Another coverage available is Inflation Guard, which increases your coverage by a percentage that approximates annual inflation. In that manner, you are continuing to insure your home to its proper value. Auto Insurance America recommends that you purchase these coverages. They are inexpensive and assure that you will be protected against inflation, which you have no control over.
You should review your homeowner’s policy from time to time with your local agent, particularly when you plan any building additions or changes which may increase the value of your home. Homeowner’s policies contain strict provisions, requiring that you purchase and maintain coverage to the value of your home (excluding land). Failure to maintain adequate coverage may result in only partial payment in the event of a loss. Example would be, you own a $100,000 home but only insure it for $50,000. You have a fire which causes $40,000 of damage. Your insurance company will likely pay you only $20,000 (less your deductible) because you purchased only half of the required insurance to receive full payment.
OTHER STRUCTURES
This coverage extends dwelling coverage to detached garages, storage sheds, fences, and certain other structures not attached to or part of the main building of your home. Other Structures coverage is generally limited to a percentage of the coverage on your dwelling, and excludes certain items, but usually can be increased for an additional premium, subject to the insurer’s underwriting rules.
If you have any detached buildings or structures, be sure to discuss them with your agent to be sure you are adequately covered.
PERSONAL PROPERTY
Pays for loss of your furniture, appliances, clothing, and personal belongings, as a result of a covered loss. Coverage is limited for certain items such as cash, securities, jewelry, silverware, art, antiques, heirlooms, hobbies and collections, computer equipment, guns, golf clubs and other items. Most insurers offer higher limits of coverage for these special items, but usually require a written appraisal of value or a Bill of Sale verifying their cost at the time of application for insurance. Personal property coverage, based on a percentage of your dwelling coverage, is included in a homeowner’s policy. Most insurers offer additional coverage and limits, subject to their underwriting rules.
Most policies require physical evidence of forced entry in order to cover a burglary loss. Most insurers usually offer, at a reasonable additional premium, a policy endorsement to eliminate that restriction. Auto Insurance America advises you to purchase that option, if available.
If you suffer a burglary, report it to the police and your insurer or agent immediately. Maintain a current inventory list of your appliances and personal property, and wherever possible retain receipts and appraisals in a fireproof box. Fireproof floor safes are inexpensive and highly recommended. In the event of fire, burglary, or other losses, an inventory list will be very helpful to evaluate your claim. Most insurers will provide you with an inventory form free.
Personal property coverage is very restrictive for certain target items, such as those mentioned above. If you want these items covered you must declare them to your agent, obtain appraisals and approval from the insurer, and pay an additional premium to schedule these items on your policy before a loss.
LOSS OF USE
Pays for temporary living expense you incur due to a covered loss, for example the additional costs you would incur if your home was severely damaged due to fire or windstorm and you must temporarily reside elsewhere until repairs are completed. Coverage is included in most homeowner’s policies based on a percentage of your dwelling coverage.
PERSONAL LIABILITY
Pays for certain unintentional situations you are legally responsible for, on and off your property, for example, if a visitor is injured on your property due to a crack in the stairs or sidewalk or tear in your carpet; or your dog bites a person; or someone drowns in your swimming pool; or vandalism or malicious damage is caused to others by young children in your household. Off premises, examples would be you are helping your neighbor defrost her freezer and you accidentally break the freezer or you hit a shot on the golf course and your ball hits someone in the head.
Certain activities, such as business activities, are not covered, unless declared to the insurer, approved by the insurer, and an additional premium is paid.
There are many situations you can be personally sued for in this highly litigious climate. This coverage provides legal defense as well as payment up to your policy limits for personal injuries and property damage for which you are legally responsible. This is a very inexpensive coverage, so wherever possible, you should increase your limits to $300,000 or more, usually at nominal cost.
PERSONAL LIABILITY UMBRELLA COVERAGE
Personal Umbrella Liability coverage can be best described as a second layer of insurance coverage, over and above your automobile, homeowners, boat, motorcycle, farm, rental properties, and most other basic personal liability coverage. Personal umbrella coverage protects you from huge catastrophic losses. Underwriting requirements make it mandatory that you carry certain minimum limits of liability coverage on your basic underlying policies, usually $300,000 to $500,000.
Personal umbrella policies generally provide additional coverages of $1,000,000 to $5,000,000, and may be offered by the same insurer who insures your automobiles or home, as an addition to your auto or homeowners policy, or as a separate policy from the same insurer or from a different insurer.
If you own substantial assets, check with your agent, your accountant, your attorney, and you will likely find that they recommend this coverage for possible catastrophic losses. For example, if you are legally responsible for severe injuries or fatalities in an auto accident, juries may award huge damages against you.
Personal umbrella liability coverage can usually be purchased at reasonable cost, depending on the number and type of risk exposures you are insuring. There is a small premium charged for each home, car, motorcycle, boat, RV, rental property, or other covered personal exposures.
MEDICAL PAYMENTS
Pays medical costs for injury to guests on your property regardless of who is at fault. If a friend is visiting, falls and breaks their leg on your property, your friend's medical expenses would be paid under this coverage, up to the limits you have purchased.
Medical Payments coverage is usually available in minimum limits of $5,000 per person and can usually be increased to $25,000 or more at a very reasonable additional premium. Since this covers medical bills related to personal injuries to your guests, without regard to fault, it is wise to purchase limits as high as you can afford.
FLOOD INSURANCE
Flood Insurance is not included in homeowner policies. Flood insurance is provided by private insurers under a federal disaster program administered by the Federal Emergency Management Agency (FEMA). If your home is in a designated flood zone, it’s likely that your mortgage company will require flood insurance as a condition of approving your loan. Regardless, if you reside in an area with any flood potential, you should protect your assets.
Flood insurance is available for dwellings and personal property, with certain limits prescribed by FEMA. Premiums are based on the value of your property, the elevation of the foundation of your home, whether it has any basements, and the rating published by FEMA for your territorial zone.
Flood insurance is not inexpensive, but if you live in a flood or "flash flood" area, it could be the best investment you ever made. Weather patterns throughout the United States appear to be changing with Global Warming creating severe flooding more frequently. Your agent can give you a rate quote and obtain this coverage for you.
