 |
|
|
Why Need Homeowner's Insurance and Definitions of Industry Terminology
The largest single investment most consumers make is in their home. The consumer can protect his or her home, possessions, and liability with a homeowner's insurance policy. In addition to its availability to homeowners, similar coverage is available to those who rent homes or apartments. These policies are referred to as tenants' or renters' homeowner's policies. If you are a renter, you do not need protection against damage to the building itself, but you do need protection against damage to or theft of your personal property and liability in the event someone falls or gets hurt on the part of the premises you rent. A condominium owner may purchase a condominium homeowner's policy to insure personal property. Some policies may also include any additions or alterations not insured by the condominium association. It is important to check with your condominium association and your agent before buying a policy to make sure you are adequately covered. Basic Coverage's Included in Homeowner's Policies The homeowner's insurance policy is a package policy that combines more than one type of insurance coverage in a single policy. There are four types of coverages that are contained in the homeowner's policy: Dwelling and personal property, personal liability, medical payments, and additional living expenses. Property Damage Coverage Property damage coverage helps pay for damage to your home and personal property. Other structures such as a detached garage, a tool shed, or any other building on your property are usually covered for 10% of the amount of coverage on your house. Personal property coverage will pay for personal property including household furniture, clothing, and other personal belongings. The amount of insurance coverage is usually 50% of the policy limit on your dwelling. The coverage is also limited by the types of loss listed in the policy. The coverage only pays the current cash value of the item destroyed, unless you purchased replacement cost coverage. Your homeowner's policy also provides off premises coverage. This means that the policy covers your belongings against theft even when they are not inside your home. Your insurer will reimburse you for the cost of replacing your suitcase and its contents if it were lost or stolen while you were on vacation, but only for replacing them with items of like kind and quality. Personal Property Floater Your homeowner's insurance policy may provide only limited coverage for furs, jewelry, silver, and other valuables. It may be necessary to insure these valuables with a special addition to your homeowner's policy, such as a personal property floater. A personal property floater itemizes each article, gives a description of the article insured, and lists excluded perils. It often provides coverage that is broader than the coverage granted in the home insurance policy. You should discuss this with your insurance company or agent to determine the availability and cost of this additional coverage. Your homeowner's insurance policy does not cover your pets, your car, and any aircraft. Although your policy does not cover your pet or damage it does to your possessions, it will cover damage your pet does to others or their possessions. Personal Liability Coverage Homeowner's policies provide personal liability coverage that applies to nonauto accidents on and off your property if the injury or damage is caused by you, a member of your family, or your pet. The liability coverage in your policy pays both for the cost of defending you and paying for any damages the court rules you must pay. And unlike the other coverage in your policy, liability insurance does not have a deductible that you must meet before the insurer begins to pay losses. The basic limit for liability coverage is usually $100,000 for each occurrence. You can request higher limits that are available for an additional cost. Medical Payments Coverage Medical payments coverage pays if someone outside your family is injured at your home regardless of fault. This includes payment for reasonable medical expenses incurred within one year from the date of loss for a person who is injured in an accident in your home. The coverage does not apply to you and members of your household. The medical payments portion of your homeowner's policy will also pay if you are involved in the injury of another person away from your home in some limited circumstances. Medical payments coverage limits are generally $1,000 for each person. Higher limits of medical payments coverage are available at additional cost. Additional Living Expenses If it is necessary for you to move into a motel or apartment temporarily because of damage caused by a peril covered by your policy, your insurance company will pay reasonable and necessary additional living expenses. The typical policy will pay an amount up to 20% of the policy limit on your dwelling for these expenses. If you move in temporarily with a friend or relative and do not have any extra expenses, you will not be paid any additional living expenses by your insurance company. Your homeowner's policy generally provides the following additional coverage's for expenses that go beyond the repair of the house: Debris Removal. The policy covers the expense of having the debris that is left as a result of the loss removed from the premises. , Plants, and Shrubs. Trees, plants, and shrubs around the house are usually covered for 5% of the insurance on the house, up to $500 per item. A homeowner's policy provides coverage against theft, fire, lightning, explosion, vandalism, riot, and even falling aircraft. But it doesn't cover them against windstorm damage. The reason is the wind causes so much damage to gardens and landscaping, including it in coverage would make the insurance unaffordable for most people. Credit Card Coverage. Personal property coverage extends to credit cards as well. Most policies will pay up to $500 to cover unauthorized use of your credit cards. Common Exclusions Most homeowner's policies do not provide coverage for loss of animals, birds, fish, or damage to automobiles. Water damage caused by flood, surface water, overflow of a body of water, or spray from any of these whether or not driven by wind are usually excluded. Water damage due to sewers or drains that have backed up are also excluded. Damage resulting from war, nuclear hazard, neglect, earth movement, or power failure are not covered. If you own a boat, you should ask your agent about whether or not it is covered under your policy. Some policies cover small motorboats and sailboats, but not larger ones. What is not covered by your insurance policy as well as what is varies from insurer to insurer. Ask questions before you purchase a policy. Here is a sample of commonly asked questions: Am I covered for food spoilage during a power failure? What about debris removal? - from my buildings? - from my neighbors' buildings? What happens when a tree falls on my roof? How does the insurer figure depreciation? Is ice damage covered? How does the additional living expenses benefit work? What kinds of proof of loss will I need? How do the deductibles work? Is my TV antenna covered? Does my homeowner's policy provide coverage for my personal computer? Insurance Forms An insurance form is another name for an insurance policy, and it specifies what perils your home and belongings are insured against. The following are descriptions of the various insurance forms available for homeowners, renters, and condominium owners. Not all insurers use these exact terms to describe their home insurance forms. Types of Policies There are several types of homeowner's policies available in Oregon and Washington. They vary according to the coverage in the policy and the type of dwelling being insured. The broad form (usually called HO-2) covers fire or lightning, windstorm or hail, theft, explosion, smoke, damage from vehicles and aircraft, glass breakage, removal of property endangered by peril, vandalism and malicious mischief, and riot or civil commotion. The HO-2 also covers building collapse; freezing of or accidental discharge of water or steam from within plumbing, heating, or air conditioning systems and domestic appliances; falling objects; weight of ice, snow, or sleet; and rupture or bursting of steam or hot water heating systems. The special form (HO-3) provides comprehensive coverage for "all risks" except certain specified perils, such as earthquake and flood, and provides coverage for damage to personal property caused by any of the perils covered by the HO-2. For an additional premium, a special personal property coverage endorsement (HO-15) can be added to extend the HO-3 to provide "all-risks" coverage on unscheduled personal property. The comprehensive form (HO-5) is not often sold today, but you could have one from earlier years. It has an even shorter list of exclusions. Not all insurers offer the HO-5, but many offer policies similar to the HO-5. The modified coverage form (HO-8) is designed to provide package coverage to the owner-occupants of homes that do not meet all the requirements applicable to other homeowner policies. An HO-8 provides building and personal property coverage slightly more restrictive than that of other homeowner policies for owner-occupants that include a replacement cost clause. The HO-8 is particularly well-suited for residences that have suffered extensive depreciation. Your home may not qualify for one of the homeowner's package policies; therefore, a company may offer you limited coverage on your house. This coverage may be Fire and Extended Coverage. Your home and only your home would be covered for damage due to very specific perils or losses. Dwelling Policy A dwelling policy provides more limited property coverage than a homeowner’s policy. The dwelling policy provides property coverage only (protection for individuals and families against loss to a dwelling or personal belongings). The homeowner’s policy covers more. It offers a combination of property and liability coverage's. Dwelling policies may be used to insure homes that don’t qualify for homeowner’s insurance. For example, they are commonly used to insure seasonal homes which are unoccupied for portions of the year. To qualify for dwelling insurance, a building does not have to be occupied by the owner, and it may even be under construction. Some types of stationary mobile homes qualify, as well as homes with up to five boarders and four unit apartment complexes. (Although some mobile homes may qualify for the broader coverage of a homeowner’s policy.) You will also see the term "dwelling" appear in a homeowner’s policy. In the context of a homeowner’s policy, dwelling means the structure in which the homeowner lives. Renter's Insurance If you rent an apartment or a house, you are responsible for insuring your personal possessions and for personal liability coverage. Personal liability coverage protects renters the same as it would if you were a homeowner. The owner of the property is responsible for insuring the building and for obtaining his or her own liability coverage. Tenants Form (HO-4) or renter's policy insures your household contents and personal belongings against the perils included in the homeowner's HO-2 policy. Like homeowner's insurance, it provides coverage for additional living expenses, medical payments coverage, and includes personal liability protection. Condominium Insurance Your condominium association should purchase a policy that covers the building, including any common walls and grounds, and includes personal liability protection associated with common properties. You have a right to examine the association policy. To protect your contents and interior walls, you may purchase a Unit-Owners Form. An individual unit-owner policy is similar to the homeowner's and renter's insurance policy. Condominium Unit-Owners Form (HO-6) provides coverage for a unit-owner who wishes to insure his or her property or to cover any items not insured by the association's policy. An HO-6 policy will also pay for property damage to personal belongings, wall, floor, and ceiling coverings and any accessories not originally installed in the unit. It also provides personal liability protection. Check with your agent to see if loss assessment coverage is included in the policy. Loss assessment coverage provides an additional coverage of $1,000 when the condominium association levies an assessment to cover expenses for direct losses to the common property. Additional coverage may be available for an increased premium. Other Types of Policies Mobile Homeowner's Policy The mobile homeowner's policy is a package of insurance written specifically for mobile homes, that includes coverage on the mobile home as well as theft and liability protection. A mobile homeowner's policy can be either a named peril or a comprehensive policy. The named peril policy usually provides coverage for fire, lightning, explosion, transportation, theft, windstorm, riot or civil commotion, and personal effects. The comprehensive policy provides protection against all risks of physical loss, with stated exceptions. You should be aware that you are liable for any damages resulting from an unnamed risk or for exceptions in your comprehensive policy. A mobile homeowner's policy also provides personal property coverage, personal liability coverage and medical payments coverage. A mobile homeowner's policy provides the following optional coverage's: Consent to move endorsement waives the prohibition against moving the mobile home and extends coverage for 30 days. Transportation coverage provides collision coverage for your mobile home and its contents against damage by collision or upset while being transported from one location to another. Lien holder's single interest coverage provides coverage to protect a lien holder's interest in a mobile home and its equipment against loss due to collision damage or embezzlement, conversion, or secretion while the mobile home is in lawful possession of the insured. The premium charged for such coverage must be paid for by the lien holder and not by the tenant or the person owning the mobile home. Mobile Home Tie-Down Requirements An insurer may require that your mobile home be secured to the ground by approved tie-downs and ground anchors, unless the mobile home is secured to the ground on a permanent foundation. It is up to the insured to provide for such tie-downs or there is a possibility that insurance coverage will not be provided because of the eligibility requirements imposed by the company. Tie-down requirements vary among insurers. Contact your insurance agent or insurance company to see exactly what your insurance company's requirements are with respect to tie-downs. Items to Remember Mobile home policies are written on an actual cash value basis, which means that the depreciation of the mobile home is taken into consideration at the time of a loss. There are a few companies currently writing replacement cost coverage on mobile homes. You need to check with your agent to see if this coverage is available. Mobile home policies may require either a wind deductible and/or hail deductible. Some companies offer higher deductibles that will reduce your total premium charge. Be sure you understand what specific deductibles are involved with your mobile home policy. Make sure any additions to the mobile home are added to your insurance policy. Check with your agent to be sure that adjacent sheds, tipout rooms, skirting, and rooms built on are covered by your policy. If your mobile home is to be moved by a common carrier, you should be sure that the carrier provides adequate protection in the event of a loss. The common carrier's protection may not be enough and you may need to buy more. Contact your insurance agent before you move your mobile home to another location. Before you buy mobile home insurance, make sure your agent explains the coverage provided by the policy and the cost of the coverage. Not all mobile home policies are alike or standard. Different companies charge different premiums for the coverage provided by the policy. Make sure you understand all coverage and costs. Home Business If you operate a home business full-or part-time you might be uninsured and not realize it. Many home business owners believe that their homeowner’s insurance policy covers all their home business needs. You should not assume that your homeowner’s insurance policy will cover your home business. Your homeowner’s policy may provide coverage but probably only to a maximum of $2,500 for business equipment in the home and $250 away from the premises. Your homeowner’s policy usually does not cover business-related liability, for example, if a customer or supplier is injured on your property. A homeowner’s policy does not insure your inability to collect your accounts receivable if your business records are damaged, and your policy will not replace lost income if you cannot operate your business due to damage to your home. Discuss your home business insurance needs with our agents to buy the policy that best fits your needs. Farm or Ranch Policies A farm owner's policy resembles a homeowner's policy in many ways. The usual farm owner's policy does not provide replacement cost coverage on your dwelling no matter what policy limits you may purchase. You can buy replacement cost coverage for your farm, but you must ask for it. Crops, livestock, and farm equipment usually must be insured under separate policies. Check with your agent to make sure that your entire farm operation is adequately insured. Flood Insurance The homeowner's insurance policy excludes water damage as a result of flooding. You may, however, be able to purchase flood insurance through the National Flood Insurance Program (NFIP). To qualify for the NFIP program, you must live in a designated community that complies with the government guidelines for flood prevention. The best person to help you buy flood insurance is the agent or the insurer from whom you obtain your homeowner's or automobile insurance. Flood insurance may be bought through any licensed property or casualty insurance agent in Oregon and Washington Some insurers actually issue the flood insurance policies, in partnership with the federal government, as a service and convenience for their policyholders. In those instances, the insurer handles the premium billing and collection, policy issuance, and loss adjustment on behalf of the federal government. These insurers are called Write Your Own (WYO) insurers. If your agent or insurer is not in the WYO Program, you may be referred to another agent or insurer involved in the program. Your agent may also order the policy for you directly from the federal government. Sewer Backup Losses from the backing up of a sewer or sump pump are not covered under your homeowner’s insurance policy, and are probably not covered by your flood insurance policy. Sewer backup is also not covered under your homeowner’s insurance policy. Sewer backup coverage is an endorsement available through most insurance companies, but it may not be offered to you when purchasing homeowner's insurance coverage if you don’t ask for it. Ask your agent for more information on sewer backup coverage. Umbrella Liability Insurance Usually the best buy in insurance for your protection Umbrella policies supplement the liability coverage you already have through your home and auto insurance and provide an extra layer of protection. Normally, umbrella policies kick in after the liability insurance in your homeowners and auto policy runs out. For example, if you are responsible for someone’s injury that required $150,000 of medical treatment and the liability limit of your homeowner’s policy is $100,000, your umbrella policy will pay the additional $50,000. Also there are some situations, such as libel and slander, that a standard policy does not cover. An umbrella liability policy enables people to protect themselves against catastrophic lawsuits in such situations. Umbrella policies are sold with a variety of limits, commonly $1 million or $5 million. The underlying policies provide the first dollars in a liability claim and the umbrella is available to any remaining amounts until the amount paid by all policies reaches the umbrella limit. Many companies won’t sell you an umbrella policy unless your primary insurance coverage is with them. In addition, your insurer may stipulate that your auto or homeowner’s liability limits be at least a certain amount, such as $200,000 to $300,000. Umbrella policies are usually sold with a deductible that can range from $250 to $1,000. Umbrella liability policy coverage usually protects policyholders wherever they travel. Many such policies will cover legal defense costs even if the charges are proved baseless. Umbrella liability coverage has come to be in high demand among individuals who have substantial assets and who may be especially vulnerable to lawsuits and costly judgments. Buying the Correct Amount of Coverage Choosing Your Policy Limits In deciding how much coverage to have on your house, or the contents, you should consider: The kind of coverage you want and are willing to pay for. The value of your home and/or contents. This amount could vary depending on the type of coverage you want. Whether or not you want full coverage or are willing to share the cost of a loss with your insurer. Remember: The more perils your policy covers, the more you will pay for the policy. The loss chart in this guide shows the perils covered by each homeowner policy. It is important to have a list of your possessions, with values and serial numbers. It will help you decide how much coverage you need and you can use it when you have to make a claim. Buying Enough Coverage Before buying homeowner's insurance, you need to understand the difference between "replacement cost" and "actual cash value." Most homeowner policies contain replacement cost coverage on the home and actual cash value coverage on personal property Replacement cost is the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality, without deducting for depreciation. Depreciation is the decrease in home or property value since the time it was built or purchased because of age or wear and tear. In order to qualify for replacement cost coverage, the dwelling is required to be insured to at least 80% of the replacement cost. The amount of replacement cost coverage available is limited to the amount of insurance you choose to buy. The coverage amount is stated on the declarations page of your policy. If you purchase an amount less than 80% of replacement cost of your home, your insurance company will not be obligated to pay the total cost of loss to your home even if there is a small loss. The "loss settlement" section of your policy explains how the settlement is calculated. Do not confuse replacement cost with market value. Market value is a real estate term that describes what the current value of your home would be if you were to sell it, including the price of the land. Actual cash value is the value of your property when it is damaged or destroyed. This is usually figured out by taking the replacement cost and subtracting depreciation. Contents coverage (for such items as furniture, television sets, and appliances) is usually on an actual cash value basis. For example a chair that costs $500 to replace may have a reasonable "life" of 20 years. If it is destroyed after 10 years, its actual cash value will be much less than $500, probably about $250. Most polices pay for losses to your contents on an actual cash value basis, but a better option is the replacement cost coverage. Although the cost is higher, in most cases, the extra protection may be worth it. Replacement cost coverage is available for an additional premium. Guaranteed replacement cost coverage (also called extended replacement cost). Guaranteed replacement cost coverage is the most complete coverage for your home. It will pay the full amount needed to replace your home if it is destroyed by a covered peril, even if that amount is more than the policy's coverage limits that are stated on the declarations page of your policy. To obtain this type of coverage, you typically must meet specific underwriting rules and conditions of the company. This may include selecting a dwelling limit equal to 100% replacement cost and increasing the amount of your insurance on a monthly, quarterly, or yearly basis to keep up with the inflation rate. Many companies will not offer this additional protection on older homes. Check with your insurance agent to determine if an additional premium is required and if there are exclusions or conditions that apply. Most homeowner's policies include an inflation-guard. This automatically increases the value of your policy as the value of your home increases. Even if you have this, you should check periodically to see that your home is insured to its full value. Whether your home is insured for replacement value or actual cash value, it is important to keep track of its value. For instance, the addition of a room, new insulation, and yearly inflation all increase the replacement cost of your home, while the actual cash value of the home may decrease over time. Check with your agent or insurance company at least once a year to make sure your policy provides adequate coverage. Optional Coverage's you May Wish to Consider Secondary Residence Premises Endorsement. Homeowner's coverage under this endorsement applies to a secondary residence (example: summer home). Remember that these secondary residences are not automatically covered by the home insurance policy on your primary or principal residence. Watercraft Endorsement. Applicable to small sailboats and outboard motor boats, this endorsement broadens personal liability and medical payments coverage on them. Theft Coverage Protection Endorsement. As a result of this endorsement, your theft protection is broadened. The contents of your motor vehicle, trailer, or watercraft are covered without proof of forcible entry. This endorsement applies only to forms HO-2, HO-3, and HO-4. Credit Card Forgery and Depositors Forgery Coverage Endorsement. Loss, theft, or unauthorized use of credit cards (with certain exceptions) is covered by this endorsement. Also covered is the forgery of any check, draft, promissory note, etc., again with certain exceptions. No deductible applies to this endorsement. Deductibles Deductibles reduce costs because you pay the first $100 or $250 of every loss. The deductible applies to only coverage on your house and personal property. Since you are actually "self-insuring" for the deductible amount, you should ask if the savings is worth it. There are many kinds of deductibles. Some insurers have "flat" $50 or $100 deductibles applying to all covered losses. Others apply the deductible only to certain losses. Some provide a "disappearing" deductible. The deductible decreases as the amount of the loss increases. When your loss exceeds a certain amount, the deductible "disappears" and the insurer pays the full amount. The higher the deductible, the lower the premium on your policy will be. For example, homeowner's policies that provide for $100,000 to $250,000 coverage, the standard deductible is $250. If you take a deductible of $500, the premium will be about 5% to 10% lower. Reducing the Cost of Your Homeowner's Coverage Every homeowner insurer has its own package of "special" discounts to attract particular types of customers. Below is a sample of discounts to ask your agent about. Multiple-policy discounts. Many insurers that sell homeowner's, auto, and liability coverage may take 5% to 15% off your premium if you keep two or more policies with them. If you already have an auto policy with one insurer, find out if that insurer would give you a discount on homeowner's coverage. Credits for protection devices. You can usually get discounts of 2% to 5% for a smoke detector or a burglar alarm. Some insurers offer to cut your premium by as much as 15% to 20% if you install a sophisticated sprinkler system and a burglar alarm that rings bells at the police station. But these systems are costly and not every system on the market may qualify for the discount. Before taking any action, find out what devices would cost versus how much premium you would save. Nonsmoker discounts. A few insurers offer to reduce premiums for homeowners who do not smoke. (You will not qualify for this discount if any family member who lives with you is a smoker). Fire-resistant building materials. A few insurers offer discounts for homes that are made of fire-resistant materials. Long-time policyholders. If you have maintained coverage with an insurer for several years, you may qualify for special considerations. Several insurers will reduce their premiums by 5% if you stay with them for 3 to 5 years and by 10% if you remain a policyholder for 6 or more years. A good agent will be able to inquire about your particular circumstances to acquaint you with all applicable discount packages offered by the insurer he or she represents. Inventory List It is very helpful to prepare some type of inventory of your possessions now, before something happens to them. A simple way to do this is to go methodically from room to room and make a written list of your possessions and record their values. You may want to stick with items worth $100 or more, since adjusters generally don’t question claims for the common possessions which most people would be expected to own. Do make special note of property that is unusual, or unusually valuable. Don’t forget the garage, basement, attic, and outdoor storage areas. Taking pictures of your belongings is even easier. A video camera does an especially quick and thorough job of documentation. Preparing an inventory accomplishes two important things. First, it will make the process of filing a claim more orderly and less stressful, should you have a loss someday. Second, it can help you determine whether some of your more valuable possessions require more coverage than your present policy limits provide. A written list, which is very helpful, may not be acceptable proof to an insurance company that an item existed, or that you owned it. Receipts for purchases are the best documentation. You should keep all receipts and photos with your inventory list. Arrange to store your documentation at a site other than your home--for instance, a safety deposit box or the home of a responsible friend. That way, you won’t have to worry that a fire or other calamity will destroy your records just when you need them most. |
