|
 What
is homeowners insurance, and who should buy it?
What
is the difference between "actual cash value" and "replacement cost"?
What
are the limits in the standard homeowners policy?
Where
and when is my personal property covered?
Do
I need earthquake coverage? How can I get it?
What
should I consider when buying homeowners insurance?
What
is the difference between an "all risks" policy and a "named perils" policy?
What
can I do to lower the cost of my homeowners insurance?
If
I have an accident I think is covered under my homeowners policy, what should I do?
Who
pays for my legal defense costs if I am sued?
What is homeowners insurance, and who should
buy it?
Homeowners is one of the most popular forms of personal insurance
on the market. The typical homeowners policy has two main sections: Section
I covers your property, and Section II provides personal liability coverage
(to cover you in case of lawsuits arising from things that happen on your property).
Almost anyone who owns or leases property should have this type of insurance.
Often, homeowners insurance is required by lenders as a requirement to obtain
a mortgage.
Back to Top
What is the difference between "actual cash
value" and "replacement cost"?
Covered losses under a homeowners policy can be paid on either
an actual cash value basis or on a replacement cost basis. When "actual cash
value" is used, the policyowner is entitled to the depreciated value of the
damaged property - so the older the item is, the less money you may receive
for it. Under the "replacement cost" coverage, the policyowner is reimbursed
the amount it costs to replace the property with something of a similar type
and quality at current prices.
Back to Top
What are the limits in the standard homeowners
policy?
[Note: this answer is based on the Insurance Services Office's
HO-3 policy.]Coverage A and B cover your dwelling and other structures on the
premises on an "all risks" basis up to the policy limits.
You set the limit for Coverage A when you buy the policy. The
Coverage B limit is usually equal to 10% of the policy limit on Coverage A.
Coverage C covers losses to your personal property on a "named perils" basis,
which means you're covered for all the perils specifically named on your policy.
The policy limit on Coverage C is equal to 50% of the policy limit on Coverage
A. Coverage D covers extra expenses you may incur when the residence can't be
used because of an insured loss. The policy limit for Coverage D is equal to
20% of the policy limit on Coverage A. You choose the Coverage E - personal
liability - limit when you buy the policy. The limit on Coverage F - medical
payments to others - is usually set at $1000 per injured person
Back to Top
Where and when is my personal property covered?
Coverage C, the named perils coverage, applies to all your personal
property (except property specifically excluded) anywhere in the world. For
example, suppose that while traveling, you purchased a dresser and you wanted
to ship it home. Your homeowners policy would provide coverage while the dresser
is in transit - even though the dresser has never been in your home before.
Back to Top
Do I need earthquake coverage? How can I get
it?
Direct damages due to earthquakes are not covered under standard
homeowners insurance policies. And unless you live in an area prone to earthquakes,
you probably don't need it. If you do live in a part of the country with high
earthquake activity you may want to consider adding an earthquake endorsement
to your homeowners insurance policy. This will cover damages due to earthquakes,
landslides, volcanic eruptions and other earth movements.
Back to Top
What should I consider when buying homeowners
insurance?
First and foremost, buy the amount and type of insurance you need.
Remember: if your policy limit is less than 80% of the replacement cost of your
home, you will face a "coinsurance penalty," which means you'll have out-of-pocket
expenses to cover costs beyond your policy's deductible. For example: Your home's
estimated replacement value (RCV) is $100,000. The co-insurance clause requires
you carry at least $80,000 (80% of your RCV), so you would be underinsured by
half if you bought a $40,000 policy. In such a scenario, the company would pay
half of a loss less the policy deductible - so if you had a $500 deductible
and suffered a $10,000 covered loss, your policy would only pay $4,500.
Also, figure out how much personal property insurance and personal
liability coverage you need. Personal property, like a home, should be insured
for its replacement value. Personal liability is a bit more subjective, but
limits should not be less than those on other liability insurance such as auto.
Seek advice from a financial or legal professional if in doubt. Finally, think
about the extras you could add to your policy. For example, do you want the
personal property replacement cost endorsement or the earthquake endorsement?
Finally, once you have decided on the coverage you want, you can decide which
insurer you would like to purchase the insurance from. You should also decide
whether you would like an insurance agent to help you make decisions or you
want to buy the product directly from an insurer without an agent.
Back to Top
What is the difference between an "all risks"
policy and a "named perils" policy?
A named perils policy covers losses that are due to only those
perils listed in the policy. Those typically include fire, windstorm, hail,
and other physical losses. An all risks policy covers losses that are due to
any peril except those specifically excluded in the policy. An all risks policy
provides broader protection than a named perils policy.
Back to Top
What can I do to lower the cost of my homeowners
insurance?
The best thing to do is to shop around. You could find quotes
on homeowners insurance that vary by hundreds of dollars for the same coverage
on the same home. When you shop, make sure each insurer is offering the same
coverage. Many insurers use the ISO policy forms, but this is not always the
case. Another way to cut costs is to look for discounts that apply to you. For
example, many insurers will offer a discount when you buy both your automobile
and homeowners insurance from them. Some insurers offer discounts if you have
deadbolt exterior locks on all your doors, or if your home has a security system.
Ask your agent or company about discounts. Another easy way to save is to raise
your deductible. Increasing your deductible from $250 to $500 will lower your
premium, sometimes by as much as five or ten percent. However, you should be
sure you have enough cash on hand to cover the larger deductible in case of
emergency.
Back to Top
If I have an accident I think is covered under
my homeowners policy, what should I do?
Insurance contracts are conditional contracts, which means policyowners
have certain responsibilities to meet if a covered loss occurs. Not completing
these can result in non-payment by the insurance company for losses that otherwise
would have been covered. These include: (1) notifying the insurance company
or the agent that a loss has occurred -- this should be done as soon as you
discover the loss; (2) protecting the property from further damage and/or making
any repairs necessary to prevent further damage; (3) preparing a detailed list
of the personal items damaged that contains descriptions, the items' actual
cash value, or their replacement cost if you have added the replacement cost
endorsement to your policy; (4) being prepared to show the company and/or the
insurance agent the damaged items; (5) completing a statement for the insurance
company that explains how the loss occurred -- for example, the time the damage
occurred, the cause, etc.
Back to Top
Who pays for my legal defense costs if I
am sued?
In the unfortunate event that you are sued, your homeowners policy
will not only cover the cost of your legal defense, but your insurance company
will also provide the legal counsel.
Back to Top
|
CENTER HOME
CENTER FOR RMI RESEARCH • GEORGIA STATE UNIVERSITY • P.O. BOX 4036 • ATLANTA, GA 30302-4036 • 404.413.7515
