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Homeowners and Renters Insurance

StreetWise Insurance Guide

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Homeowners and Renters Insurance

What is Homeowners Insurance?  | What is Renters Insurance  | Why do you need it?

What types of homeowners insurance are available?

What losses, perils, and liabilities are covered under homeowners insurance?

Typical Hazards and Perils Covered  | Typical Exclusions  | Riders or Endorsements

What about flood insurance?  | Why get a CLUE report if you're buying or selling a home?

What about insuring a home office  | How much insurance do you need?

Why it's important to make an inventory  | What can void your coverage?  | How do you file a claim?

What if you have difficulty settling your claim?  | How to prevent losses  | Ways to save on your insurance



What is Homeowners Insurance?

Homeowners insurance covers damage to your home (real property) and your personal belongings (personal property) for the hazards or perils specified by your policy. It also covers your liability for any injuries and property damage that you or your family members (including household pets) cause to other people. It may often include temporarily living expenses if your home is damaged due to a covered peril and it being repaired or rebuilt.

Types of policies include:

  • Actual cash value policies pay to replace your home and possessions minus depreciation up to the policy limit.

  • Replacement cost policies pay the actual cost of rebuilding/repairing your home and replacing your possessions up to the policy limit. There is no deduction for depreciation.

  • Guaranteed replacement cost policies pay whatever it costs to rebuild your home as it was before the disaster even if it exceeds the policy limit.

  • Extended replacement cost policies pay a specified percentage over the policy limit to rebuild your home. Usual percentages are 20% or 25%.

Premiums are determined by the following factors:

  • Size of the house (square footage) and any additional structures

  • Building costs in the area

  • The house's construction, materials, and features

  • Crime in the neighborhood

  • Risk of natural disasters, such as hurricanes

  • How close the house is to a fire hydrant and to a fire station (and other factors that can affect the time it takes to put out fires)

  • Condition of plumbing, heating, and electrical systems

What Is Renters Insurance?

Renters insurance is designed to protect people who live in a rented property. It typically covers three things:

  1. Your belongings against such perils as fire, smoke, lightening, vandalism, theft, explosion, windstorm, and water damage, but not flood damage.

  2. Your liability for any injuries and property damage that you or your family members (including household pets) cause to other people.

  3. Temporary living expenses while your damaged residence is being rebuilt or repaired.

The owner of the rented property is responsible for insuring the physical building.

Types of policies include:

  • Actual cash value policies pay to replace your possessions minus depreciation up to the policy limit.

  • Replacement cost policies pay the actual cost of replacing your possessions up to the policy limit.

In some areas, if you own a multi-unit rental property such as a duplex or triplex and live in one unit of it, you may need to purchase renters insurance to cover the contents of your apartment in addition to the homeowners hazard and liability policy that you carry on the complete structure.

Why do you need it?

For most Americans, their home is their largest and most important investment. Homeowners insurance protects owners from losing the value of this investment if disaster strikes and enables them to repair or rebuild their home. Insurance is also required by mortgage lenders. But even if the mortgage has been paid off, insurance on your home enables you to repair or replace the “roof over your head” in the event of catastrophe.

What types of homeowners insurance are available?

The basic types of homeowners insurance policies are fairly standard across the states:

  • HO-1 is the most basic. It provides bare bones coverage covering only the perils named in the policy. It is not available in most states.

  • HO-2 provides protection for specific perils named in the policy. There is a version of this policy designed for mobile homes.

  • HO-3 provides protection for all perils except for those specifically excluded in the policy. (This is the most popular type of homeowners insurance.)

  • HO-4 is designed specifically for renters. It protects your possessions against specific perils listed in the policy.

  • HO-6 is for those who own a condo or co-op. It provides coverage for your possessions and those portions of the structure that you own for the specific perils listed in the policy.

  • HO-8 is designed for older homes. It usually doesn't provide for full replacement cost. It provides for actual cash value reimbursement minus depreciation for any of the perils listed in the policy.

What losses, perils, and liabilities are covered under homeowners insurance?

Every homeowners policy states precisely what kinds of risks and hazards/perils are covered. Policies also spell out coverage limits, exclusions, and limitations in various policy sections.

All policies have the following six major coverage sections. Renters insurance policies don't have coverages A and B.

  • A covers damage to or destruction of the structure of the home. Coverages B, C, and D are usually expressed as a percentage of this coverage.

  • B covers damage to or destruction of structures that aren't attached to the home such as detached garages, in ground swimming pools or storage sheds. Coverage is typically 10% of A.

  • C covers damage to, destruction of, or theft of personal property including away from home. Coverage is typically 40 to 70% of A. Coverage away from home is usually 10% of A.

  • D covers additional living costs incurred as the result of a loss covered by A, B, or C. This coverage doesn't pay all of your temporary living expenses. It covers those expenses that are in excess of your normal living expenses. Coverage is typically 10 to 20% of A.

  • E covers personal liability for injuries and property damage caused by the insured at home or elsewhere. Legal costs for defending the insured are covered and are in addition to the policy limits. Typical personal liability coverage is a minimum of $100,000, with higher amounts available.

  • F covers reimbursement of reasonable medical payments to guests injured at your home. Coverage is typically $1000.

Typical Hazards and Perils Covered

The most popular type of homeowners insurance is HO-3 that covers all perils except those that are specifically excluded. Typical hazards or perils covered include, but are not limited to:

  • fire

  • lightning

  • smoke

  • windstorm (excluded in some areas of the country)

  • hail

  • vandalism

  • theft

  • falling objects (like a tree)

  • weight of snow or ice

  • vehicle causing damage to the building

  • building collapse

  • water damage from bursting or frozen pipes

  • structural damage from electrical surge (not the TV or electronics).

Typical Exclusions

Perils that are usually excluded in most policies include:

  • earthquake

  • floods

  • windstorm (in certain areas of the country; for example, some coastal areas subject to hurricanes)

  • war

  • pet damage

  • damage from birds, rodents, or insects

  • pollution damage

  • water damage resulting from floods or sewer backup

  • deliberate damage you do to your own home

  • normal wear and tear

Riders or Endorsements

You can add special endorsements or riders to your policy to cover some typically excluded perils and to increase coverage for those items that exceed basic policy coverage. Special endorsements can include, but are not limited to:

  • earthquake special endorsement

  • windstorm special endorsement

  • sewer backup special endorsement

  • jewelry rider — can cover jewelry for its appraised value

  • fine art rider — can cover expensive antiques and art works

  • silverware

  • furs

  • oriental rugs

  • computer equipment

  • building code changes

  • zoning law changes

  • secondary residence premises endorsement

  • watercraft endorsement

  • theft coverage protection — broadens the coverage

For valuable items, such as jewelry, art work, and collectibles, you may need to have them appraised so that you will have adequate insurance.

What about flood insurance?

You can't add an endorsement to cover floods. You must get a separate flood insurance policy. Individuals whose dwelling is in an area prone to flooding, such as coastal areas or communities located near rivers, may be eligible to participate in the National Flood Insurance Program, which is administered by an agency of the federal government. You can find out more at the official website: www.floodsmart.gov. If your home is in a government-identified flood zone, your mortgage provider will typically require flood insurance as a condition of getting the loan.

Why get a CLUE report if you're buying or selling a home?

Because many insurers use the previous claims history of a property, smart homebuyers should make sure of the insurability of any home, particularly an existing or older home, before offering a contract. Therefore, you may wish to have the seller provide you with a copy of the CLUE “loss history report” for the property. CLUE stands for Comprehensive Loss Underwriting Exchange, a database to which most companies providing homeowner's property insurance report claims. Recently a number of buyers have been finding that they may not be able to get insurance on the home they wish to purchase or may have to pay much higher rates to insure the home if the property has a history of problems and insurance claims. Only the homeowner or insurance company can request the CLUE report, which is why you must request it from the seller. A-PLUS is another company that provides loss history reports. If you are selling a home, you may wish to order a CLUE report in order to show potential buyers that your home is insurable. This guide's section “What are loss history databases?” provides more information.

What about insuring a home office?

If you have a home office, you may be able to add a rider to your home owner's policy to cover your equipment. If you need liability insurance then you probably need a separate business insurance policy.

How much insurance do you need?

The Insurance Information Institute suggests that you first need enough insurance to cover the cost of rebuilding your house at today's construction cost. This cost (which is exclusive of the cost of the land) may be higher or lower than what you paid for the house. Getting some expert guidance may be important in determining that figure. Some lenders require only that you have enough insurance to cover the cost of the mortgage; that figure may be inadequate to cover the value of your house. So whether you have existing homeowners or are buying a new home you'll be insuring, it's important to ask questions about adequate coverage of your insurance advisor.

In addition to covering the replacement cost of your house, the Insurance Information Institute recommends that you have adequate insurance to cover your possessions, living expenses if you have to live elsewhere while a damaged house is repaired, and liability.

Why it's important to make an inventory before you buy or update your homeowners insurance

Beyond the value of your home's structure, you need sufficient coverage for your possessions. What are they? What is their value today? The best way to answer those questions is to make an inventory and keep it up to date. In addition to a list of items, insurance experts suggest that you photograph the items. If you keep your list on your computer, it's easy to review and update it annually.

Here are some tips for making an inventory:

  • Organize it by room.

  • Describe each item, including make and model, and where it was bought. Record the serial number, if the item has one.

  • Attach sales receipts, purchase contracts, and appraisals to your list.

  • For clothes, count each type of item, such as pants, shoes, shirts, coats, etc. Particularly note those that are valuable.

  • Supplement your written list with photographs. Make sure you label the photos.

  • If you have a video camera, videotape each room. You can also add a narration as you tape.

  • Don't forget items that are in drawers, closets, attic, and basement.

  • Use your computer. Make your list, scan in receipts, photos, and other papers. Keep these in a fireproof box. Make a copy of your inventory and photos and store them away from the house; a safety deposit box is the securest location.

  • Add valuable new items (such as a new entertainment system) to the inventory when you purchase them. Review and revise the list annually.

What can void your coverage?

Once you have acquired your insurance, you want to make sure you keep it. Your policy can be cancelled if you don't pay the premium or if you committed fraud or made serious misrepresentations on your application. Your policy may contain clauses or conditions that specify other reasons that could void portions or all of your coverage. Examples include failure to report claims promptly, failure to cooperate fully with the insurance company, and failure to protect the property from further loss. Another example would be using your home for a business (perhaps even providing informal but regular childcare for three or four children not your own) not specifically included in the policy. Make sure you read your policy carefully to determine what the conditions are.

An insurance company may also cancel or refuse to renew your coverage or raise your premiums if for any reason the property no longer meets their underwriting criteria. For example, perhaps the building has grown too old or the zoning has changed, or you have in some way increased your liability exposure (one state gave the example of adding a trampoline to the yard). Filing too many claims, in many cases, may also lead to cancellation.

How do you file a claim?

Has your home been damaged in a storm, vandalized, or burglarized? Then you will probably need to file a claim. Your policy probably lists the steps you need to take. Here are some basic steps.

  • If a crime has been committed report it to the police. You should get a copy of the police report.

  • Contact your insurance agent or company immediately.

  • If necessary, try to protect your property from further damage. Save your receipts.

  • Don't dispose of damaged items until the adjuster has seen them.

  • Prepare a list of damaged items. Take pictures of the damage.

  • Get the appropriate claim forms and fill them out completely. Return them within the time limit.

What should you do if you have difficulty settling your claim?

If your claim has been denied or if you aren't satisfied with the handling of the claim then you can take these steps:

  • Make sure you can support your case with documentation. Be prepared to send copies with any letters. Keep the original documents, such as estimates and receipts and only send copies. Also keep copies of all letters.

  • Be prepared to document each phone call. Note the date and time of each conversation and name of each person you talked to.

  • Review your policy to see if it contains information on resolving disputes or appealing a claim denial.

  • Talk with your agent or company representative. If they can't solve the problem then get the name and phone number of the company's claims manager.

  • Send a letter explaining your problem including copies of supporting documentation to the company claims manager.

  • If your problem still isn't satisfactorily resolved, then contact your state insurance department and file a complaint. Locate your state insurance website using the National Association of Insurance Commissioners (NAIC) website.

  • As a last resort, you may want to consult an attorney. Make sure you choose an attorney that specializes in homeowners insurance. Be prepared to pay a consultation fee and get the fee structure in writing before pursuing the case.

How to prevent losses (so you don't have to file a claim)

Here are some steps you can take to reduce your chances of having to file a claim:

  • Install UL approved smoke detectors on every floor. Remember to change the batteries at least twice a year. The best rule of thumb is to change them when you change your clocks for Daylight Savings Time in the spring and fall.

  • Install a carbon monoxide detector.

  • Install a UL approved dry chemical fire extinguisher in the kitchen for grease fires. Check it periodically to make sure that it is fully charged.

  • Install deadbolt locks on all external doors. Lock first floor and basement doors and windows at night and when not at home.

  • Install a monitored alarm system for burglary and fire. Include a motion detection alarm.

  • If you have a fireplace, clean the fireplace, chimney, and flues regularly to prevent fires.

  • If you have a wood stove, clean it annually. Don't leave it unattended.

  • Keep walks clear and safe.

  • Keep trees trimmed and clear of the house.

  • If you have a swimming pool, have an approved fence or enclosure.

  • Don't store flammable liquids such as gasoline and propane inside your home. A locked shed is safer.

  • Have your furnace checked each year. Change furnace filters regularly.

  • Avoid kerosene space heaters. If you use other types, keep them away from combustible materials and never let them run unattended.

  • Have newspaper delivery stopped and the mail held when you will be away from your home for an extended time.

  • Consider spotlights with motion detectors to light your yard when there is an intruder.

  • Keep combustible items away from your kitchen oven and stove.

Ways to save on your insurance

Here are some tips to help you save on your homeowner's insurance:

  • Comparison shop. Prices vary widely among insurance companies so it pays to compare.

  • Some insurers provide discounts for being a long-term customer. For example, some may offer a 5% discount if you've been with them for 3 to 5 years or 10% if you've been with them for 6 years or more.

  • Some insurers provide discounts if you have other insurance policies — such as auto or umbrella liability — with the company.

  • Ask about discounts for safety features such as automatic sprinkler systems, monitored burglar and fire alarms, smoke detectors, dead-bolt locks and fire extinguishers.

  • Ask about other discounts. Some companies provide discounts if you are over 55, retired, or modernized your electrical system or plumbing.

  • Raise your deductible to $500, $1000, or as much as you can comfortably afford to pay if you have a loss.

  • Insure the house, not the land. The land isn't at risk from the perils covered in your homeowner's policy.

  • Make your home more disaster resistant. Check with your insurance company to see if installing storm shutters or shatter-proof glass, reinforcing your roof, or making other modifications might reduce your premiums.

DCU Insurance offers Homeowners and Renters insurance through multiple carriers. Free quotes are available.