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What is homeowners
insurance?
Consult Independent Insurance Services of Central Iowa for
Homeowners insurance that provides financial protection against
disasters. A standard policy insures the home itself and the
things you keep in it.
Homeowners insurance is a package policy. This means that it
covers both damage to your property and your liability or legal
responsibility for any injuries and property damage you or
members of your family cause to other people. This includes
damage caused by household pets.
Damage caused by most disasters is covered but there are
exceptions. The most significant are damage caused by floods,
earthquakes and poor maintenance. You must buy two separate
policies for flood and earthquake coverage. Maintenance-related
problems are the homeowners' responsibility.
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What is in a standard
homeowners insurance policy?
A standard homeowners insurance policy includes four essential
types of coverage. They include:
1. Coverage for the structure of
your home.
This part of your policy pays to repair or rebuild your home if
it is damaged or destroyed by fire, hurricane, hail, lightning
or other disaster listed in your policy. It will not pay for
damage caused by a flood, earthquake or routine wear and tear.
When purchasing coverage for the structure of your home, it is
important to buy enough to rebuild your home.
Most standard policies also cover structures that are detached
from your home such as a garage, tool shed or gazebo. Generally,
these structures are covered for about 10% of the amount of
insurance you have on the structure of your home. If you need
more coverage, talk to your insurance agent about purchasing
more insurance.
2. Coverage for your personal
belongings.
Your furniture, clothes, sports equipment and other personal
items are covered if they are stolen or destroyed by fire,
hurricane or other insured disaster. Most companies provide
coverage for 50% to 70% of the amount of insurance you have on
the structure of your home. So if you have $100,000 worth of
insurance on the structure of your home, you would have between
$50,000 to $70,000 worth of coverage for your belongings. The
best way to determine if this is enough coverage is to conduct a
home inventory.
This part of your policy includes off-premises coverage. This
means that your belongings are covered anywhere in the world,
unless you have decided against off-premises coverage. Some
companies limit the amount to 10% of the amount of insurance you
have for your possessions. You have up to $500 of coverage for
unauthorized use of your credit cards.
Expensive items like jewelry, furs and silverware are covered,
but there are usually dollar limits if they are stolen.
Generally, you are covered for between $1,000 to $2,000 for all
of your jewelry and furs. To insure these items to their full
value, purchase a special personal property endorsement or
floater and insure the item for it's appraised value. Coverage
includes “accidental disappearance, ” meaning coverage if you
simply lose that item. And there is no deductible.
Trees, plants and shrubs are also covered under standard
homeowners insurance. Generally you are covered for 5% of the
insurance on the house –- up to about $500 per item. Perils
covered are theft, fire, lightning, explosion, vandalism, riot
and even falling aircraft. They are not covered for damage by
wind or disease.
3. Liability protection.
This covers you against lawsuits for bodily injury or property
damage that you or family members cause to other people. It also
pays for damage caused by your pets. So, if your son, daughter
or dog accidentally ruins your neighbor’s expensive rug, you are
covered. However, if they destroy your rug, you are not covered.
The liability portion of your policy pays for both the cost of
defending you in court and any court awards -- up to the limit
of your policy. You are also covered not just in your home, but
anywhere in the world.
Liability limits generally start at about $100,000. However,
experts recommend that you purchase at least $300,000 worth of
protection. Some people feel more comfortable with even more
coverage. You can purchase an umbrella or excess liability
policy which provides broader coverage, including claims against
you for libel and slander, as well as higher liability limits.
Generally, umbrella policies cost between $200 to $350 for $1
million of additional liability protection.
Your policy also provides no-fault medical coverage. In the
event a friend or neighbor is injured in your home, he or she
can simply submit medical bills to your insurance company. This
way, expenses are paid without their filing a liability claim
against you. You can generally get $1,000 to $5,000 worth of
this coverage. It does not, however, pay the medical bills for
your family or your pet.
4. Additional living expenses in
the event you are temporarily unable to live in your home
because of a fire or other insured disaster.
This pays the additional costs of living away from home if you
can't live there due to damage from a fire, storm or other
insured disaster. It covers hotel bills, restaurant meals and
other living expenses incurred while your home is being rebuilt.
Coverage for additional living expenses differs from company to
company. Many policies provide coverage for about 20% of the
insurance on your house. You can increase this coverage,
however, for an additional premium. Some companies sell a policy
that provides an unlimited amount of loss-of-use coverage -- for
a limited amount of time.
If you rent out part of your house, this coverage will also
reimburse you for the rent that you would have collected from
your tenant if your home had not been destroyed.
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Can I own a home without
homeowners insurance?
Unlike driving a car, you can legally own a home without
homeowners insurance. But, if you have bought your home and
financed the purchase with a mortgage, your lender will most
likely require you to get homeowners insurance coverage. That’s
because lenders need to protect their investment in your home in
case your house burns down or is badly damaged by a storm,
tornado or other disaster. If you live in an area likely to
flood, the bank will also require you to purchase flood
insurance. Some financial institutions may also require
earthquake coverage if you live in a region vulnerable to
earthquakes. If you buy a co-op or condominium, your board will
probably require you to buy homeowners insurance.
After your mortgage is paid off, no one will force you to buy
homeowners insurance. But it doesn’t make sense to cancel your
policy and risk losing what you’ve invested in your home.
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How and why it is important
to take a home inventory!
Would you be able to remember all the possessions you’ve
accumulated over the years if they were destroyed by a fire?
Having an up-to-date home inventory will help you get your
insurance claim settled faster, verify losses for your income
tax return and help you purchase the correct amount of
insurance.
Start by making a list of your possessions, describing each item
and noting where you bought it and its make and model. Clip to
your list any sales receipts, purchase contracts, and appraisals
you have. For clothing, count the items you own by category --
pants, coats, shoes, for example –- making notes about those
that are especially valuable. For major appliance and electronic
equipment, record their serial numbers usually found on the back
or bottom.
- Don't be put off!
If you are just setting up a household, starting an inventory
list can be relatively simple. If you’ve been living in the
same house for many years, however, the task of creating a
list can be daunting. Still, it’s better to have an incomplete
inventory than nothing at all. Start with recent purchases and
then try to remember what you can about older possessions.
- Higher Value Items!
Valuable items like jewelry, art work and collectibles may
have increased in value since you received them. Check with
your agent to make sure that you have adequate insurance for
these items. They may need to be insured separately.
- Take Pictures!
Besides the list, you can take pictures of rooms and important
individual items. On the back of the photos, note what is
shown and where you bought it or the make. Don’t forget things
that are in closets or drawers.
- Use
a Video Recorder!
Walk through your house or apartment videotaping and
describing the contents. Or do the same thing using a tape
recorder.
- Using your computer!
Use your PC to make your inventory list. Personal finance
software packages often include a homeowners room-by-room
inventory program.
- Keep Your list, video and photos safe!
Regardless of how you do it (written list, floppy disk,
photos, videotape or audio tape), keep your inventory along
with receipts in your safe deposit box or at a friend's or
relative's home. That way you’ll be sure to have something to
give your insurance representative if your home is damaged.
When you make a significant purchase, add the information to
your inventory while the details are fresh in your mind.
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Are there different types
of policies?
Yes. A person who owns his or her home would have a different
policy from someone who rents. Policies also differ on the
amount of insurance coverage provided.
The different types of homeowners policies are fairly standard
throughout the country. However, individual states and companies
may offer policies that are slightly different or go by other
names such as “standard” or “deluxe”. You should consult with a professional insurance
consultant to determine which coverages best suit your needs
If you own your home
If you own the home you live in, you have several policies to
choose from. The most popular policy is the HO-3, which provides
the broadest coverage. Owners of multi-family homes generally
purchase an HO-3 with an endorsement to cover the risks
associated with having renters live in their homes.
- HO-1: Limited coverage policy
This “bare bones” policy covers you against the first
10 disasters. It's no longer available in most states.
- HO-2: Basic policy
It provides protection against all 16 disasters. There
is a version of HO-2 designed for mobile homes.
- HO-3: The most popular policy
This “special” policy protects your home from all
perils except those specifically excluded.
- HO-8: Older home
Designed for older homes, this policy usually
reimburses you for damage on an actual cash value basis which
means replacement cost less depreciation. Full replacement
cost policies may not be available for some older homes.
If you rent your home
- HO4-Renter
Created specifically for those who rent the home they live in,
this policy protects your possessions and any parts of the
apartment that you own, such as new kitchen cabinets you
install, against all 16 disasters.
If you own a co-op or a condo
- H0-6: condo/co-op A policy for those who own a
condo or co-op, it provides coverage for your belongings and
the structural parts of the building that you own. It protects
you against all 16 disasters.
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What's the difference
between cancellation and non-renewal?
There is a big difference between when an insurance company
cancels a policy and when it chooses not to renew it. Insurance
companies cannot cancel a policy that has been in force for more
than 60 days except:
- If you fail to pay the
premium.
- You have committed fraud or
made serious misrepresentations on your application.
Non-renewal is a different
matter. Either you or your insurance company can decide not to
renew the policy when it expires. Depending on the state you
live in, your insurance company must give you a certain number
of days notice and explain the reason for non-renewal before it
drops your policy. If you think the reason is unfair or want a
further explanation, call the insurance company's consumer
affairs division. If you don't get an explanation, call your
state insurance department.
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Insurance Information Institute
www.iii.org/individuals/homeowners/ |
