FAQs About Your Homeowner's Insurance
Questions on specific concerns
about condominiums and renting an apartment or dwelling are answered after
the general questions.
Click Question Links Here
4
Do I
really need insurance for my home?
Insurance, any kind, is your protection against the uncertainties of
day-to-day living. For most people, their home is their single most
valuable possession - and their biggest investment. Homeowners insurance
protects your investment as well as you, the members of your family and
your household possessions.
If you were to suddenly lose your home due to fire or a tornado or have
the contents damaged or stolen, like most of us, you probably could not
afford to replace everything all at once. And if somebody sued you for an
injury or damage caused by you or your property, the cost of defending
that suit could run into thousands of dollars just for legal fees -
regardless of the outcome of the suit.
All of these situations are covered by the homeowners package policy.
And while it may be unpleasant to think about fire, theft, and other
"uncertainties of life," let's face it, they are there and things happen.
Yet another reason you need to carry homeowners insurance is that
mortgage lenders require it. No mortgage company will lend the large
amounts of money needed to finance homes at today's prices without
requiring an insurance policy to protect that investment.
Return
to Home Index
You do - it is your home and your insurance policy. As a
means of protecting their investment, the mortgage company collects a set
amount from you each month, puts it in escrow, and then pays your
insurance and taxes when they fall due. However, the policy is still yours
and you may select the insurance you feel offers the best coverage at the
best rates. In fact, if you allow the mortgage company to choose, you
might well end up paying more for your homeowners insurance.
Return
to Home Index
"Exact" coverage is hard to define because there are different policies
and about 900 insurance companies writing most of the property/casualty
business in the United States. However, 80 percent of homeowners policies
are based on a standard form and that is the one described in this guide.
All homeowners policies cover two important areas: property and liability.
Remember that you have to have protection against the proverbial thief in
the night and the person who slips on your sidewalk by day.
What this means in insurance terms is that your homeowners policy has
two basic components. It covers your structures and possessions -
property insurance - and it furnishes protection against personal
liability. Personal liability, as its name implies, means you are
legally obligated to pay money to another person for actions caused by
you, your family, or your property. That liability extends to medical
payments to others for injuries caused by you or your family.
Return
to Home Index
Remember that policies vary but homeowners insurance usually covers
damage to both structures and personal property caused by:
- Fire or lightning
- Windstorm or hail
- Explosions
- Riot or civil commotion
- Aircraft
- Vehicles
- Smoke
- Theft or vandalism (sometimes called malicious mischief)
- Falling objects
- Weight of ice, snow or sleet
- Freezing of a plumbing, heating, air conditioning or other such
household system
In fact, your coverage is most likely even more comprehensive than the
above list. Many homeowners policies cover damage by "just about
everything," unless the coverage is specifically excluded. In these cases,
it is even more important to understand what is not
covered.
Return
to Home Index
Most catastrophes are covered; for example, wind damage from hurricanes
and tornadoes come under the windstorm peril listed in the previous
question and so are included. Flood and earthquake damage, however, are
not covered by a standard policy.
Be careful not to be lulled into a false sense of geographic security.
Flood and earthquake activity is more widespread than many people realize.
For example, almost 90 percent of the U.S. population lives in seismically
active areas. Since 1900, earthquakes have occurred in 39 states and
caused damage in all 50. And if your home is located in a flood-prone
area, you are 26 times more likely to suffer a flood loss than a loss from
fire.
You may want to check with your agent about special catastrophic
policies for normally excluded conditions like floods and earthquakes. Of
course, the cost of such extra coverage may reflect the high risk
involved. If you live along a shoreline, for example, expect to pay a
higher premium for flood coverage than someone living on a mountaintop
would pay.
Return
to Home Index
There may be other exclusions spelled out in your policy such as
neglect, intentional loss, "earth movement," general power failure and
even damage caused by war. If you neglect to take care of your property
(e.g., a leaky roof), you may not be covered. Obviously, if you
intend to lose an object or damage your property, there is no
coverage.
One other exclusion that can be costly is the Ordinance or Law
exclusion. Building codes established by governmental bodies that drive up
the cost of rebuilding or repairing after a loss occurs may not be covered
by your insurance policy. Thus, 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 materials may not be
covered for the full price.
For example, if the current building code in your area requires a
higher grade of electrical wiring and after a fire you are replacing all
the wiring in your home, your policy may cover only the cost of replacing
the older wiring. The difference in cost between the old wiring and the
new wiring required by ordinance or law is your responsibility.
Even if you live in a fairly new home, laws and building codes are
constantly being updated. Coverage to include ordinance or law
requirements can be added to your homeowners policy with an endorsement -
an addition that could save you money in the long run.
Return
to Home Index
Are the backyard shed and my color TV both covered in my homeowners
policy?
Yes, they are both your property so they are both covered. The value of
the real property - your home, garage, shed and other structures - is
generally based on the value of the main structure, the house itself.
Thus, if the house were insured for $75,000, the shed, detached garage and
other auxiliary structures would be covered for 10 percent or $7,500 worth
of damages. Additional property protection features may include living
expenses should your home not be habitable for a period of time.
Your personal property is also covered by a homeowners insurance
policy. Personal property includes the contents of your home and personal
belongings used, owned, worn, or carried by you or members of your
household - basically, everything and the kitchen sink! This
coverage is also based on the house coverage, and there are limits on the
losses that can be claimed. Higher limits can be purchased for both real
and personal property.
Return
to Home Index
Who decides how much my
property is worth?
State laws may dictate how losses are to be figured, which means the
same insurance company may use one method in one state and a different
method in another. The common methods are:
Actual Cash Value - The replacement cost of the item minus
depreciation. For example, a new television set may cost $500. If your
7-year-old TV set gets damaged in a fire, it might have depreciated 50
percent. Therefore, you would be paid $250 for that set.
Replacement Coverage - The cost of replacing an item without
deducting for depreciation. So today's cost for a TV set with features
similar to the 7-year-old one damaged by fire would determine the amount
of compensation. If it still costs $500 today, that would be the
replacement coverage.
Replacement value should not be confused
with market value. The market value is what your house, for
example, would actually sell for and is generally more than the
replacement cost. This is because replacement value does not include the
land - which almost always does not need to be replaced.
Check your policy. If you prefer replacement coverage and do not
already have it, this coverage can be added to your policy. Typically, the
difference in premiums is 10 to 15 percent to upgrade from actual cash
value coverage to replacement coverage. However, it is well worth it to
protect your investment in your possessions. Your agent can advise you of
the costs involved.
Return
to Home Index
How much will I be paid
for damage to my personal property?
Remember that homeowners insurance is designed to cover general
personal possessions, not valuable collections like antiques, jewelry or
original art. Insurance companies deliberately limit their coverage of
expensive possessions so that household premiums are more affordable to
everyone. After all, if they had to cover museum-level art collectors
under standard homeowners policies, we would all end up paying higher
premiums to cover those expensive items.
Your policy lists the specific monetary limits for personal property
under what is called "Special Limits." Those limits usually are:
- $200 for money, bank notes, gold and silver (other than goldware and
silverware), platinum, coins, and medals.
- $1,000 on securities, accounts, deeds, evidences of debt, letters of
credit, notes (other than bank notes), manuscripts, passports, tickets,
and stamps.
- $1,000 on watercraft, including their trailers, furnishings,
equipment and outboard motors.
- $1,000 on trailers not used for watercraft.
- $1,000 for loss by theft of jewelry, watches, furs, precious and
semiprecious stones.
- $2,000 for loss by theft of firearms.
- $2,500 for loss by theft of silverware, silver-plated ware,
goldware, gold-plated ware and pewterware.
- $2,500 on property on the resident premises, used for business, and
$250 on this property damaged or lost away from the premises.
If these limits seem low to you (maybe that engagement ring is worth
much more than $2,500), you may wish to talk to your agent about
additional coverage for specific items.
Return
to Home Index
Does my policy cover my possessions even when I go on
vacation?
Yes, perhaps in this case the term "homeowners" is misleading because
this is a package of insurance coverage that extends to all your
possessions no matter where they are. If you take a round-the-world
vacation and lose a valuable item, as long as the loss is by a covered
event or peril, the location does not matter.
The liability component also extends well beyond the boundaries of your
home. Should you be found legally at fault for injury or loss to another
individual, whether you unfortunately caused a tumble down a San Francisco
hill or a fall in an Indiana barn, that is personal liability which again
is addressed in your homeowners policy.
As in the property section of your homeowners policy, there are limits
and exclusions to personal liability. Your business activities, for
example, are not covered under a homeowners policy. You are also not
covered for injuries or damage you purposely cause. So if a fight with a
neighbor turns physical and you end up bopping him on the nose, your
homeowners insurance will not cover the injury or any resulting suit.
Your
policy lists specific exclusions and limits.
Return
to Home Index
No. Your property and the structure (the basement) are covered
by your policy as is your personal liability. However, the tenants'
possessions and liability are not covered by your policy. Therefore, they
may wish to purchase their own renters insurance. Whether you are a lessor
or a renter, you should check with your agent to make sure you have the
right coverage.
Return
to Home Index
As a member of the family, she is probably covered under your
homeowners policy. So too is your child away at college covered for
personal liability or theft or damage to his or her property even in the
dormitory or college apartment. However, you should check with your agent
to be sure of the extent of coverage.
Return
to Home Index
Insurance companies can operate in more than one state so the company
that carries your primary residence may issue a policy for your vacation
home. Personal liability is covered in the first homeowners policy so the
second policy need cover only property. This type of policy is called a
"dwelling policy."
If you rent out your second home for all or part of the year, your
homeowners policy may need to be endorsed (added to) to cover the
increased liability exposure. The renter's property is not covered under
your dwelling policy. Should damage occur while someone is renting your
property, they will need to check with their own agent about their
coverage.
Return
to Home Index
Yes, but within certain limits. Both are covered as personal property
used for business purposes. However, like all personal property, there are
monetary limits on reimbursement. Whether your home business is your
primary occupation or a hobby that nets you a few hundred dollars a year,
it is still a business and you should treat it as such. If you've invested
quite a bit in equipment (woodworking tools, for example) and sell the
occasional decoy, you should consider whether the personal property limits
are sufficient.
Also, keep in mind that the personal liability protection in your
homeowners policy does not extend to business liability. Check with
your agent concerning your business insurance needs.
Return
to Home Index
It's true - if most of us suddenly found ourselves without anything due
to some calamity, we would be hard pressed to know all that we had lost.
When was the last time, for example, that you counted the number of shoes
you own or CDs, not to even mention furniture, dishes, drapes, or audio
and video equipment? And the list goes on and on. How much is it all worth
and where would you start if you had to replace it?
Now is the time to make a list of major household items and
possessions. The handy inventory form at the back of this guide will make
your job easier. Just remember that, where possible, it is wise to list
the serial number, date and cost of purchase, and even include the receipt
if you can.
Another easy way to inventory your home is to use a video camera or
take pictures of your home and its contents. As you take the video, you
can also talk about the items and their date and cost of purchase.
Whichever method you choose, have a copy made and ask a friend or
family member to hold on to it. Or store your copy in a safe deposit box.
You could even check with your agent - he or she may be able to store a
copy for you. That way if the worst happens and your home is destroyed,
the inventory list will be safe at another location.
Return
to Home Index
The insurance company has to weigh many factors in determining a
premium to charge for your policy. One factor is access to water (hence
the question about the location of the nearest fire hydrant) as well as
the dependability and nearness of your local fire company and police.
Rural homes more than five miles from a water supply are more at risk for
severe damage from fire and lightning. Therefore, they can be more
expensive to insure and rural homeowners may even have difficulty
obtaining insurance.
Other factors are, of course, the age and construction of your house.
Generally, brick and stone homes are cheaper to insure than ones
constructed of wood.
The number and dollar amount of lawsuits in your state can also
influence your premiums. Residents in states that experience a large
number of lawsuits or of verdicts in excess of $1 million may face higher
premiums to cover the cost of those suits.
Return
to Home Index
Because your premium is based partly on the level of risk the insurance
company must take, there are things you can do to lower your premium.
Installing deadbolt locks (to discourage theft), fire extinguishers, smoke
alarms, and burglar and fire alarms that alert your local police and fire
stations can often save you up to 15 percent on your premium. Check with
your agent before purchasing any of these items to see if your insurance
carrier has specific requirements to qualify for the discount.
Many insurers also offer discounts if you insure both your home and
automobile with the same company. Another way to save may be to increase
the deductible on your homeowners policy. If your deductible is $100, it
means that you agree to pay this amount first, and your insurance company
will pay for damages that exceed this deductible. By increasing your
deductible from $100 to $250, or even $500, this decreases the insurance
company's risk, which may mean a savings in your premium.
Also, it pays to shop around for insurance coverage just like anything
else. Of course, you may want to keep in mind that the extent of coverage
also determines the premium cost so the cheapest policy is not necessarily
the best. Your insurance agent can help you evaluate the different
policies and companies to find the one most suitable for you.
Return
to Home Index
Insurance is a heavily regulated industry. Every state has some sort of
department, administration or agency that regulates and monitors every
insurer operating within the state's borders. In addition to approving
rates, your state's insurance department is involved in all insurance
matters on behalf of private citizens and businesses. It also issues
operating licenses to insurers and agents, based on their ability to meet
the state's requirements for conduct and knowledge about insurance issues.
Your insurance company and agent work closely with your insurance
department to make sure you are getting the best and fairest possible
service within the state's guidelines. If you ever have difficulty
settling a claim, work with your agent to resolve the difficulty. However,
you can also contact your state's insurance department (listed in the next
section of this guide) if you wish to know more about your options and
rights as an insurance consumer.
Return
to Home Index
Contact your agent as soon as possible. If there is damage to your home
or possessions, make "emergency" repairs to protect yourself and your
property from further damage, then call your agent. For example, if some
of the windows in your home have been blown out by wind, you may board
them up to prevent additional damage. In fact, your policy covers the cost
of these emergency measures.
However, before setting about to make permanent repairs, call your
agent. The insurance company has the right to inspect the property in its
damaged condition. They may want to send a claims adjuster or instruct you
to get an estimate from an independent contractor.
If you have property stolen, notify the police immediately and
call your agent.
Return
to Home Index
Liability covers bodily injury and property damage to others due to
your negligence. The coverage applies to non-auto accidents that occur
either at your residence or off the premises. Medical expense payments
such as first aid can also be due to the injured party. Should you be sued
or suspect that you may be, contact your agent immediately.
Return
to Home Index
The same rule of thumb applies to renters as to homeowners. If
catastrophe struck tomorrow, could you afford to replace everything you
own? Or if you were sued, would you have enough money to pay legal fees
and possibly settle the suit? If not, chances are you would benefit from
the protection that renters insurance brings.
Renters insurance offers the same general personal property coverage
and liability protection as a homeowners policy. Thus, your camera is
insured while you are on vacation, and you are covered if your grandfather
clock crashes into the apartment lobby's wall and leaves a gaping hole. In
fact, most policies are surprisingly extensive and may include additional
living expenses (also called loss-of-use coverage) if you are forced by
fire or other damage to live elsewhere.
Return
to Home Index
No, the landlord's insurance covers damage to the building and the
landlord's property - not your personal property or liability.
Plus, you may be liable for damage to the building if it is your fault. If
you go out and leave the stove on and an ensuing fire causes extensive
damage to the entire building, you may be held liable to the
landlord.
Return
to Home Index
Renters insurance is surprisingly inexpensive. That's because you are
not insuring a building. Like all property/casualty policies, the value of
your property to be insured and other risk factors are weighed by the
insurance company to determine your premium. Your insurance agent can help
you find the best combination of coverage and cost.
Return
to Home Index
Check with your agent. Usually, it is best if all roommates are on the
same policy although it is possible for each to purchase his or her own
coverage. If you do need to "go it alone," you alone receive the security
of renters coverage.
Return
to Home Index
Condo owners insurance covers the same general areas outlined
throughout this guide for homeowners in the important areas of personal
property and liability. In addition, condo owners insurance provides
coverage for some situations specific to condominium unit owners.
Usually, the condominium association buys insurance to cover the
property (building and structures) and liability coverage for the general
association. If you own a condominium unit, you may be responsible for
covering from the "walls in" on your unit, that is, for your personal
property and the interior of your unit (whatever area is excluded from the
condo association's policy) as well as for your personal liability.
Sometimes, condo owners are assessed by their condo association for
losses "outside the walls" that were not completely covered by the
association's policy. For example, if the clubhouse is destroyed and the
condo association did not have it insured, you could be assessed for a
"share" amount needed to replace it. If you wish, check with your agent
 about adding such "loss assessment coverage" to your condo owners policy.
Return
to Home Index | 
