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.
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My
homeowners insurance is part of the payment I make each month to the
mortgage company. Who decides what insurance to get?
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.
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I
know I have that homeowners policy in a drawer somewhere. What exactly
does it cover?
"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.
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What
kinds of perils am I protected against?
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.
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What
about floods, earthquakes and other catastrophes?
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 mountain top would pay.
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Are
there any other exclusions I should know about?
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.
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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.
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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.
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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.
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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.
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I
rent out my basement. Are my tenants covered by my homeowners policy?
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.
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My
mother lives with us in a separate in-law suite. Are her possessions
covered?
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.
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What
about our vacation home in the next state?
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.
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I
work out of my home. Are my inventory and business property covered?
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.
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Help!
I've lost everything! Where do I start?
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.
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Why
does the insurance company want to know where the nearest fire hydrant
to my home is?
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.
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Is
there anything I can do to lower my premiums?
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.
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Who
keeps an eye on the insurance companies?
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.
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What
do I do when my property is damaged or stolen?
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.
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What
if I am sued or found liable for injury to another person?
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.
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I
am a renter, not a homeowner. Do I need insurance?
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.
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Isn't
my apartment covered under my landlord's policy?
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.
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How
are prices determined for renters insurance?
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.
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I
live in an apartment with three roommates. Do we each need a policy?
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.
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I
own a condo. How is my policy different?
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.
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Business Insurance
